BOJ Defends Yield Curve

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:

• The chart shows that the stock market is consolidating in the support/resistance zone.
• RSI on the chart shows that the stock market can go either way, but with a higher propensity to go up.
• There is optimism in the stock market on Bank of Japan (BOJ) defending the yield curve.
  • The consensus has been that BOJ is in the process of relaxing yield curve control.
  • The latest move from BOJ goes against the consensus.
  • BOJ is willing to buy unlimited amounts of two and five year notes.
  • The move by BOJ is a surprise.
• In yesterday’s Morning Capsule we wrote:

For many institutions, today is the last day for tax loss selling.

• There is relief this morning that the bulk of tax loss selling is over.  Stocks impacted by tax loss selling such as Tesla (TSLA) are bouncing.
• There has been a concern in the stock market that the rapid spread of COVID in China may have led to new variants.  There is optimism in the market this morning that Italy found no new variants in passengers on a flight from China.  Half of the passengers were infected.
• Will Santa come?  So far, instead of being up, the stock market is down during the traditional Santa Claus rally period.
• There is aggressive buying by the momo crowd this morning on expectations that Santa has finally arrived.
• Momo gurus are predicting that because of positive seasonality, the stock market will be up from here. It is important to pay attention to what momo gurus are saying because of their huge following, but you also need to know that their job is not to provide accurate objective analysis but to do whatever it takes to run up the stock market.
• What happens next will come down to how hedge funds are positioning for quick short term trades in the new year.

Jobless Claims

Jobless claims came at 225K vs. 220K consensus.

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.

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 $1817, silver futures are at $24.19, and oil futures are at $78.17.

S&P 500 futures resistance levels are 3860, 3950 and 4000: support levels are 3770, 3630 and 3600.

DJIA futures are up 182 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 good, very long term, 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.

Tax Loss Selling

Please click here for a chart of  Nasdaq 100 ETF (QQQ).

Note the following:

• The chart shows that QQQ has dropped into the support/resistance zone.
• The chart shows that the October low of the year is not far away.
• The chart shows that RSI is very oversold.
• The chart shows that the volume has not been high during the recent selloff.
• The sum total of the foregoing is that from a traditional technical analysis perspective, the stock market is positioned to bounce.  However, investors need to keep in mind that traditional technical analysis no longer works as well as it used to.  For this reason, investors need to look at a comprehensive analysis such as the ZYX Asset Allocation Model.  ZYX Asset Allocation Model is an adaptive model that changes itself with market conditions. Please click here to see how adaptiveness is accomplished.
• Seasonality is positive.
• Bulls are still hoping for a Santa Claus rally that includes the last five trading days of 2022 and the first two trading days of 2023.
• There has been intense tax loss selling in tech stocks, momo stocks, and meme stocks.  
• For many institutions, today is the last day for tax loss selling.
• As the tax loss selling ends, that should lift some of the selling pressure off the market.  However, many hedge funds are about to start positioning for short term trades for the new year.  It is not clear which way the net of such positioning will go.
• Investors need to know that there are likely many stops right under the October low shown on the chart.
• If the market gets close to the October low shown on the chart, hunt and destroy algorithms will take over and attempt to take out the stops.  For next level information, please listen to the podcast titled “Wall Street Secret: Hunt And Destroy Algorithms.”
• If the October low is taken out, it will be a sell signal in traditional technical analysis and will cause technically oriented investors to sell; such investors are presently buying. Such a switch from buying to selling by technically oriented investors can potentially cause a big spike down.
• As an actionable item, pay attention to the ‘Protection Bands And What To Do Now’ section below.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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 coming under pressure because of two developments in the crypto world.

• Kraken, a currency exchange focused on cryptos, is ending operations in Japan.
• Solana, a popular crypto, is plunging on concerns that whales are about to sell.

On the positive side, MSTR bought 2395 bitcoins for about $42.8M in cash during November 1 to December 21.  Some investors are seeing this as a sign of confidence.  However, prudent investors need to keep in mind that lately MSTR has been wrong, is sitting on a huge loss, and the buying is relatively small.

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 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 $1818, silver futures are at $24.27, and oil futures are at $78.90.

S&P 500 futures resistance levels are 3950, 4000, and 4200: support levels are 3770, 3630, and 3600.

DJIA futures are up 40 points.

News From China

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:

• The chart shows that the stock market is consolidating in the support/resistance zone.
• RSI on the chart shows that the stock market can go either way.
• There was aggressive buying in stock futures yesterday evening and early this morning on the news from China.  China is scraping quarantine requirements for incoming travelers.
• Stocks in Shanghai were up 1% overnight.
• The momo crowd is aggressively buying Chinese stocks oblivious to the Taiwan risk.  Over the weekend, China sent 71 planes and seven ships towards Taiwan.  The Chinese show of force is in response to U.S. defense spending bill.  President Biden has signed the $858B bill into law.  The bill is $45B more than what Biden had requested.  The bill authorizes increased cooperation with Taiwan and India to counter China.
• As the morning has progressed, some investors are taking advantage of the strength and selling.  As of this writing, Nasdaq futures have turned negative after being up strongly earlier in the morning.  S&P 500 futures have given up most of their gains from earlier this morning as well.
• Seasonality is positive.

Two Years Down Is A Rarity

Since 1928, the stock market falling two years straight in a row is a rarity.  It has happened only four times:

• Great Depression
• World War II
• Oil crisis in 1970’s
• Dot.com bubble bust in early 2000’s

Momo gurus are adding these statistics to their narrative to persuade their followers to buy stocks.

Japan

China has a choke hold on rare earth minerals.  Rare earth minerals are essential to many of today’s technologies.  To reduce dependence on China, Japan will start extracting rare earth minerals from the sea bed starting in 2024.  As a full disclosure, MP, a U.S. company mining rare earth minerals in the U.S., is in the ZYX Buy Model Portfolio.

Holiday Schedule

The Afternoon Capsule will not be published this week.  Afternoon Capsules will resume on January 3.

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

Gold is moving up on news from China.

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

Oil is moving up on news from China.

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

For longer-term, please see oil ratings.

Bitcoin

Bitcoin is range bound and trading below $17,000.

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 up, and bonds are ticking down.

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 $1814, silver futures are at $24.20, and oil futures are at $80.13.

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

DJIA futures are up 76 points.