25 OR 50 BASIS POINTS – THE STOCK MARKET FUTURE DEPENDS ON IT

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By Nigam Arora & Dr. Natasha Arora

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

25 Or 50 Basis Points

Please click here for a chart of the 10-year real interest rate.

Note the following:

  • The chart is based on a model by the Federal Reserve Bank of Cleveland. The model estimates the expected rate of inflation over the next 30 years along with the inflation risk premium, the real risk premium, and the real interest rate.
  • The yield on 10-year treasury notes have moved to 1.945%.
  • Inflation is running over 7% at this time.
  • The interpretation from the chart is that over 30 years inflation will be much lower and overall interest rates will remain lower. Of course, this will be true only if the model is correct.
  • The regular readers of the Morning Capsule know that The Arora Report has consistently called in advance when Fed models have been incorrect.  So far, our track record is 100% correct.
  • At a minimum, from the chart, the target for real interest rates from this model is to rise to 1.30% from the current 0.33%
  • There is a great debate raging among economists — will the Fed raise interest rates by 25 basis points or 50 basis points in March?
  • In our analysis, the stock market can handle 25 basis points but not 50 basis points.
  • Prior to the current swoon in the stock market, we have provided three scenarios to the downside for the stock market.
    • 14% from the peak
    • 28% from the peak
    • 40 – 50% from the peak
  • The scenario for a 14% pullback has already come true for practical purposes.
  • If the Fed raises rates by 50 basis points, the 28% scenario will come into play.
  • The Fed meeting is in March.  A lot will depend on the economic data that we share with you in the Morning Capsules between now and the Fed meeting.
  • In our analysis, the probability of a 50 basis point increase is to the low side.
  • Further in our analysis, if the Fed increases by 25 basis points, the stock market may rally as the overhang of a 50 basis point increase will lift.
  • It is important for investors to pay attention to the Morning Capsules as nothing is cast in stone and the data can change rapidly.
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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.

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 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 $1824, silver futures are at $23.01, and oil futures are $90.13.

S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

 futures are up 81 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 short-term bond funds 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.

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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.

To take a free 30-day trial to paid services to gain access to more opportunities, please click here.

This post was just published on ZYX Buy Change Alert.

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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.

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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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