QUANTITATIVE TIGHTENING BEGINS – GENIUS OF INVESTORS TO BE TESTED, OPEC+

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By Nigam Arora & Dr. Natasha Arora

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

Quantitative Tightening

Please click here for a chart of the Federal Reserve’s balance sheet.

Note the following:

  • The chart shows the Fed’s balance sheet ballooning to about $9 trillion.  In plain English, the balance sheet is a fancy way of describing money printing.
  • The chart shows the correlation between the Fed’s balance sheet and Nasdaq 100.
  • The chart shows that the Federal Reserve’s balance sheet was under $1 trillion before the financial crisis of 2008.  In 2008, most investors lost one-half or more of the value of their portfolios.   Prior to the 2008 crash in late 2007, The Arora Report protection bands were at 100%.  In 2008, The Arora Report subscribers generated over 40% return.  This was accomplished by judicious use of inverse ETFs. Those who could short sell and had more opportunities such as the Corporate Bundle made even more.
  • The chart shows that it took 10 years for Nasdaq to catch up with the rising Fed balance sheet.
    • The chart shows that the stock market threw a tantrum in late 2018 when the Fed turned hawkish.  The market quickly lost about 20%.
  • The Fed did not have the spine to do the right thing, got scared by the market drop, and reversed its policy leading to another market run-up as shown on the chart.
  • The chart shows that the Fed balance sheet ballooned when the pandemic started.
  • The chart shows that the stock market followed the rising Fed balance sheet.
  • The chart shows when the Fed indicated that it might engage in quantitative tightening (QT).  Quantitative tightening is the opposite of quantitative easing (QE) or money printing.
  • The chart shows that in spite of rising inflation and even after the Fed indicated quantitative tightening, the Fed continued to print money resulting in continued rise in the Fed’s balance sheet.
  • The chart shows that the stock market topped out when the Fed indicated quantitative tightening might be coming.
  • A large number of investors and money managers believe that they are geniuses because they made money in the stock market. the reality is that the stock market rise was primarily due to the rising Fed balance sheet.  It was not the genius of investors and money managers but the Fed money printing that created profits for investors.
  • Now the genius of investors is going to be tested.  Going forward, it is important for investors to follow a proven system such as ZYX Change Method.  It is also important for investors to understand the true nature of the markets.  What investors have experienced over the last several years is not the true nature of the markets.
  • Investors keep on hoping that just like in 2018, the Fed will not have the backbone to do the right thing.   If investors’ hope turns out to be correct, the stock market will rapidly rise.
  • The difference between 2018 and now is the raging inflation.
  • The Arora Report was the first one to call early that the Fed policy would cause inflation. That call has proven spot on.
  • In our analysis at The Arora Report, the Fed should vigorously fight inflation and not chicken out.  This will be the best course for the country and also the most profitable course for astute investors in the long term.

Blind Money

Today is the first day of the month.  Blind money is rushing into Wall Street causing the market to lift.

Yellen Admits

Treasury Secretary Yellen has finally admitted that she did not fully understand inflation.  She said that she had been wrong in claiming that inflation would not be a continuing problem.

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

There is speculation that the supply pact of OPEC+ may come to an early end.  This is due to Russia’s invasion of Ukraine.  OPEC+ is considering exempting Russia from the quota system.  The reason is that sanctions prevent Russia from increasing oil production.

Saudi Arabia and UAE have the spare capacity.  What is needed is their willingness to increase supply.  This is a bearish development for 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 staying above $30,000 in bullish action.

Markets

Our very, very short-term early stock market indicator is 🔒 but can quickly turn 🔒.  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 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 $1849, silver futures are at $21.89, and oil futures are at $116.60.

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

DJIA futures are up 230 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.

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.

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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