By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Two Important Risks
Please click here for a chart of the 30-year Treasury yield.
Note the following:
- The objective of every investor should be to generate high risk adjusted returns – this is exactly what smart money does. In contrast, the momo crowd dreams of potential rewards based on hope strategy without taking risks into account.
- The momo crowd got lucky over the last 40 years because of four mega trends. Now all four of those mega trends have ended. As a result, the next 40 years will likely be very different from the last 40 years. We have been providing you with the right information in small, easily digestible bites to position you correctly. However, a typical retail as well as institutional investor is positioned and thinking looking backwards in the rearview mirror, oblivious of what is to come. Due to the very high importance of the four mega trends ending, there will be a live event “A Forward Look At Investing 2023 – 2030.”
- Due to the four mega trends ending, there are many new opportunities but also many risks. We are addressing two risks in this Morning Capsule.
- All prudent investors need to be concerned about potential invasion of Taiwan by China. We recently shared with you:
We gave you an early warning in yesterday’s Afternoon Capsule.
Now U.S. Secretary of State Antony Blinken is saying that China has made a decision for Taiwan seizure by force on a “much faster timeline”.
- The latest is from Admiral Mike Gilday, the Chief of Naval Operations. He said that China could invade Taiwan before 2024. This is important because the prior time frame from Washington was before 2027.
- Wall Street and the momo crowd are oblivious to the threat. This is common. For example, in January of 2020, we were warning you that the virus would spread to the U.S. and result in a major drop in the stock market. The momo crowd continued to aggressively buy stocks and ran the market up to a new high in mid-February 2020. Then in March, the stock market experienced a big drop.
- The second risk comes from a long term expectation for inflation to be very low. If the economy enters a deep recession, such an assumption may be correct. However, if there is no recession or the recession is shallow, there is a risk of higher inflation in the range of 3% – 4% over a long time. The Fed’s target is 2%.
- The chart shows that the 30 year Treasury yield is 4.166%. In contrast, April Fed futures are trading at about 5%. This is the result of low inflation expectations over the long term.
- The chart shows that the yield has moved significantly above the down sloping trendline.
- In The Arora Report analysis, the 40 year long bull market in bonds has ended.
- The chart shows that the yield is very overbought. Some of our indicators are showing near exhaustion to the upside. As a result, the yield may pull back in the short term. However, if inflation numbers do not cool or the Fed pivots too soon, the risk is that the yield of the long bond will rise to the red line shown on the chart. If this occurs, there will be significant negative consequences for the stock market. Under such a scenario, there will be many new opportunities to make money.
Jobless claims came at 214K vs 233K consensus. This is a very strong report.
In the morning, futures were down. As the day progressed, the momo crowd ran up futures with aggressive buying. Then came the strong jobless claims report throwing cold water on the momo gurus’ narrative that was running up stocks. Since the jobless claims report, futures have pulled back.
Yen has lost half of its value since its prior peak. Japan is threatening fresh intervention as yen falls past key 150 level.
Of interest is that both imports and exports hit record levels.
Liz Truss has finally resigned after the biggest blunder made by a leader of a developed country in modern history. Her resignation does not solve the U.K.’s problems. If politicians in the U.S. do not shape up, it is only a matter of time before the U.S. faces similar problems.
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.
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.
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see oil ratings.
Bitcoin is range bound.
Our very, very short-term early stock market indicator is 🔒 but can easily swing either way. 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 $1637, silver futures are at $18.52, and oil futures are at $85.81.
S&P 500 futures resistance levels are 3770, 3860 and 3950: support levels are 3630, 3600 and 3520.
DJIA futures are up 55 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.
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