To gain an edge, this is what you need to know today.

Changes To Cash And Hedges

In view of the potential binary outcome ahead, changes are being made to cash levels and hedges.  Please see the Protection Bands And What To Do Now section below for the numbers.

Due to the binary nature of the outcome, the only realistic way is to lower the low band of the cash and hedges.  This way, you can make a decision based on your personal preference, risk tolerance, and time frame.  In general, younger investors can afford to be more aggressive, while older investors need to be more conservative.

Expect gurus to become more vocal to persuade you of their own agenda.  The gurus who benefit from you investing in stocks will be telling you that the break will be to the upside.  The gurus who benefit from you not investing in stocks will be telling you that the break will be to the downside.

You need to look at the data.  It is clear from the data that it is simply not possible at this time to correctly predict which way the break may occur or if a break will even occur.

Potential Binary Outcome

Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• Consumer Price Index (CPI) will be released on September 13 at 8:30am ET.
• Focus on month over month CPI.  The consensus for the headline is -0.1%.  In The Arora Report analysis, the probability is high that the headline number will be even less than the consensus.  Inflation will decline because in other data we can see the following:
  • Gas prices have come down substantially.
  • Used car prices have come down.
  • Commodity prices have come down.
  • Rents are beginning to tick down.
  • Wages are beginning to tick down, especially in the tech sector.
• In The Arora Report analysis, the probability is high that the Core CPI will be around 0.3%.  The consensus is 0.3%.
• Expect momo gurus to latch on to year over year numbers.  Both headline and core are expected to decline year over year.
• Expect momo gurus to use year over year decline to do their best to pump the stocks higher.
• Here are the problems in our analysis with momo gurus pumping stocks:
  • Even after the drop, inflation will still be running at a very high level.
  • A high level of inflation has become embedded in the system and will take time to correct.
  • The Fed has clearly said that they want to see lower inflation data for several months.  We have explained Burns’s blunder in the podcast titled “Do Not Make The Mistake: 60/40 Portfolio.”  The podcast is in post production and should be live shortly.  This Fed does not want to repeat Burns’s blunder.
  • The Fed has repeated that they want to bring inflation to 2%.  Even with a decline, inflation will be way above 2%.
• None of the foregoing is going to deter the momo gurus because their counter to the Fed is to make a mockery of the Fed and tell their followers to not believe the Fed.
• The chart shows that the data is coming at a time when the technical set up is ripe for a binary move.  
• The chart shows two cyan lines.  This pattern typically leads to a break.
• Smart money is concerned about the other shoe that is likely to drop – lower earnings. 
• Keep in mind that during an inflationary period PEs contract.  Valuation of the stock market is still too high for the current environment.

Dollar Drops

The dollar is dramatically dropping due to the leak from ECB yesterday and a statement from Bank of Japan’s Kuroda.  See yesterday’s Afternoon Capsule.

Momo Crowd And Smart Money In Stocks

In the early trade, stocks are moving higher due to the falling dollar.

The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) stocks in the early trade.  Smart money is 🔒 in the early trade.

Gold

There is buying in gold due to falling dollar.

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

There is buying in oil due to falling dollar.

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

There is a strong rally in bitcoin due to falling dollar.

Markets

Our very, very short-term early stock market indicator is 🔒 but can quickly turn 🔒 if smart money starts selling.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down, and bonds are ticking up.

The dollar is weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1729, silver futures are at $18.59, and oil futures are $85.76.

S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.

DJIA futures are up 213 points.

Protection Bands And What To Do Now?

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding 🔒 in cash or treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 🔒, and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges.  The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.  If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

Powell Resolute

In Q&A at Cato Institute, Powell is resolute.  The momo crowd bought stocks yesterday ahead of Powell Q&A.  Please see yesterday’s Afternoon Capsule for details.  The momo crowd was also buying in the early trade.  Smart money is selling into the strength.

Powell is still answering the questions.  Let us see if momo gurus are once again successful in either twisting Powell’s words or making a mockery of Powell to run up the stock market.  Our indicator is negative.

Massive Losses

Please click here for a chart of oil ETF USO.

Note the following:

• The momo crowd is suffering massive losses in oil.
• The chart shows that Wall Street gurus were almost universally issuing strong buy signals on oil right near the top. At that time, The Arora Report was issuing a signal to sell short oil.
• The chart shows a dramatic drop in oil.
• On Monday, OPEC+ took an unprecedented step to cut oil production. OPEC+ took this step to run up the price of oil.  Momo gurus issued more strong buy signals on the OPEC+ news. How did oil respond?  The chart tells the story.  The chart shows that oil has made a lower low.
• Most gurus have been issuing buy signals all along the massive drop in oil.
• Why is oil falling?  Here are the two main reasons.
  • Oil is falling on recession fears.
  • It appears China is buying oil from Russia at a $20 – $30 discount and then selling the same oil to Europeans at a $5 – $10 premium.  It appears that the same thing is happening to LNG.
    • China is happy because they are making a lot of money.
    • Russia is happy because Russia is making more money from oil and gas exports now than it did before sanctions were imposed due to the Ukraine war.
    • The US and Western European countries are happy because their politicians are strong enough to withstand Russian pressure by maintaining sanctions on Russian oil.
    • Mainstream media is not reporting the story.
• Prudent investors should note that while oil is falling on recession fears, the momo crowd is buying stocks because their gurus are telling them there will be no recession.
• The Arora Report call is 75% probability of a recession in the US and 90% probability of a recession in Europe.

Europe

ECB has raised rates by 75 basis points.  Now the key interest rate in Europe is at the highest level since 2011.  This rate hike is as we had expected in our analysis at The Arora Report.  For this reason, there is no change in our call in the “Protection Bands And What To Do Now” section.

Greater Harm

Two papers to be presented at a prestigious economic conference will say that the Fed’s efforts to bring inflation under control will cause more harm to the economy than is currently appreciated.

These papers are in total conflict with the momo gurus’ analysis.

These papers are in line with one of the high probability scenarios at The Arora Report.

Investors should not buy into following momo gurus because momo gurus claim they know what is going to happen next.  Follow Arora’s Second Law of Investing and Trading: Nobody knows with certainty what is going to happen next in the markets.

Take action based on Arora’s Third Law: Making investing and trading decisions based on probabilities is the only realistic and profitable approach.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money is 🔒 stocks in the early trade.

Gold

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 in oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is range bound.

Markets

Our very, very short-term early stock market indicator is 🔒.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates and bonds are range bound.

The dollar is slightly weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1723, silver futures are at $18.34, and oil futures are $83.02.

S&P 500 futures resistance levels are 4000, 4200 and 4318: support levels are 3950, 3860 and 3770.

DJIA futures are down 157 points.

To gain an edge, this is what you need to know today.

A Likely Leak

Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• This morning, the momo crowd was buying stocks in the early trade when a story appeared that the Fed was on course to raise the Fed funds rate by 0.75% this month.
• When the stock market starts getting out of sync with the Fed, it is common for the Fed to leak its intentions.  Experienced investors know how to determine if a story is a leak or not.
• The stock market bulls have been hoping for a 50 bps hike in September.
• The likely leak came at a very important technical level in the stock market. Stock market bulls have been drawing a line in the sand for the market to hold at 3,900 level in S&P 500.  S&P 500 is trading at 3901.75 as of this writing.
• The chart compares S&P 500 ETF SPY to Wall Street’s fear gauge VIX, long bond ETF TLT, and bullish dollar index ETF UUP.
• The chart shows a vertical line when the last market low was made on June 16.
• The chart shows that now the VIX is significantly lower compared to its level at the last market low, indicating that there is room for VIX to run up.  This is a negative for the stock market.
• The chart shows the dollar index UUP is breaking out and making a new high.  This is a negative for the stock market.
• The chart shows a horizontal line near the bottom.  The long bond ETF TLT is breaking below the prior low.  This is a negative for the stock market.

Canada

The Bank of Canada is likely to raise its key interest rate by 75 basis points in its decision to be announced later today.  This will bring the Canadian rate to 3.25% – the highest among advanced countries.

Beige Book

Fed’s Beige Book will be released today at 2pm ET.  Beige Book can be market moving.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money is 🔒 in the early trade.

Gold

Gold is coming under pressure due to the stock dollar.  The psychological support of $1,700 is close.

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see gold and silver ratings.

Oil

China’s oil imports fall by 1.1M bpd.  This is dragging oil lower.

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin has fallen below $19,000.  The trading gurus who recently turned bullish on bitcoin when it was close to $25,000 and urged their followers to buy bitcoin have now turned bearish urging their followers to short sell bitcoin now that it has fallen under $19,000.

Markets

Our very, very short-term early stock market indicator is 🔒, but the market is oversold.  An oversold market can quickly rally on the slightest news or rumor.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates and bonds are range bound after interest rates have gone up over the last few days.

The dollar is stronger.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1710, silver futures are at $17.98, and oil futures are $86.17.

S&P 500 futures resistance levels are 3950, 4000 and 4200: support levels are 3860, 3770 and 3630.

DJIA futures are down 77 points.