FED HAS A PROBLEM – MOMO GURUS READY TO RUN UP THE STOCK MARKET 10-15%

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By Nigam Arora & Dr. Natasha Arora

This was originally published yesterday morning in the paid services.

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

Fed Up Against Momo Gurus

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:

  • We have shared with you several times the chart of Dow Jones Industrial Average (DJIA) for the period of 15 years from 1967-1982.  Please click here for the chart.
    • Check out from the chart that DJIA ended January 1976 at 975.  A year later, DJIA was at 954.  Two years later it was at 770.
  • Why would we start the Morning Capsule with the foregoing old statistic?  The reason is that the momo crowd is stampeding headlong into the stock market, in part, because momo gurus are convincing them to buy based on DJIA experiencing the best month since January 1976.
    • Why would momo gurus not tell their followers what happened one year and two years after January 1976 when trying to persuade their followers to buy stocks based on the comparison of October 2022 to January 1976?  You already know the answer.  Momo gurus’ sole job is to run up the market, and there is no legal requirement for them to be fully truthful.  Does anybody care about ethics?
    • Why wouldn’t the momo crowd simply look up the chart before putting their money on the line?  This is really the wrong question.  If the momo crowd did even a little bit of due diligence, they would not belong to the momo crowd.
  • The chart compares S&P 500 ETF SPY to DJIA ETF DIA and Nasdaq 100 ETF QQQ.
  • The chart shows that QQQ was up 1.62% for the month and DIA was up 11.07% for the month.
  • Temporarily, non-momo investors are using large cap tech stocks such as Apple (AAPL), Microsoft (MSFT), Google (GOOG, GOOGL), Amazon (AMZN), and Meta (META) as a source of funds and buying stocks such as McDonald’s (MCD), Caterpillar (CAT), and Honeywell (HON).
  • We wrote in yesterday’s Morning Capsule:

If any of the four critical days described above produce even the slightest of positive data, momo buying will become extremely aggressive.  For example, it is a matter of common sense that the Fed cannot keep on increasing rates by 75 basis points at every meeting.  The Arora Report call is that the most probable terminal rate is around 5%.  This implies that after a 75 basis point hike in this meeting, the Fed may hike by only 50 basis points in the next FOMC meeting.  Remember the rates will still be going up and they are likely to stay up for awhile and Wall Street’s earnings estimates are too high.  However, imagine what the momo crowd will do if on November 2nd the Fed were to say or imply that in the next meeting the rate hike will be data dependent – a perfectly logical thing to say. Imagine how momo gurus will twist this information and how aggressive momo buying will be.

  • The Fed is now in a difficult position as they are up against the momo gurus.  If the Fed is honest and gives a truthful assessment, momo gurus are set up to run up the stock market 10% – 15% from here.  
  • To contain inflation, the Fed needs financial conditions to remain tight, but with this momo rally, financial conditions have already loosened.  If the stock market runs up another 10% – 15%, financial conditions will loosen even more, potentially igniting another bout of inflation.  
  • Powell is very aware of Burns’s blunder.  Arthur Burns was  Fed chair, under whom inflation was first reduced but then financial conditions eased, igniting another bout of inflation.
  • The Fed has a problem because Powell is no match for momo gurus.  On the surface, it seems odd as to how the most powerful central banker in the world would not be a match for the momo gurus. The reason is that Powell has a responsibility to be ethical and truthful, whereas momo gurus do not have those limitations.
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Hong Kong Stocks Soar

The stock market in Hong Kong jumped 5.49% on the dollar pulling back and rumors that China will slowly exit its zero COVID policy.

Momo Crowd And Smart Money In Stocks

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

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 🔒 oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is range bound above $20,000.

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 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 $1656, silver futures are at $19.92, and oil futures are at $88.93.

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

 futures are up 205 points.

Protection Bands And What To Do Now?

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

See also  NASDAQ UP OVER 3% AS MISLEADING MOMO GURU NARRATIVE TAKES HOLD

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.

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Nigam Arora

Nigam Arora

Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.

Dr. Natasha Arora

Dr. Natasha Arora

Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.

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