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

Option Expiration

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

Note the following:

• The chart shows that QQQ is now in the support zone.
• The chart shows that RSI is oversold and exhibiting a positive divergence. This often leads to a bounce.
• The selling appears to be exaggerated due to option expiration.
  • By some estimates, options worth about $3 trillion of notional value are expiring.
  • The momo crowd is panicking and aggressively buying put options.
  • As the market falls, market makers who sold the put options are selling stocks to hedge themselves.
  • The foregoing is exaggerating the move down.
  • Historically, after the option related selling is done, the market bounces.
• Today is Friday. In March 2020, after option expiration related selling was done on Friday, the market bounced the next week. At that time, the virus was just starting and Fed easing was ahead.  Now Fed tightening is ahead.
• There have also been cases of selling on Friday leading to more selling on Monday.  In 1987, selling on Friday triggered portfolio insurance related selling, and the market crashed on Monday.  The difference this time is that there is no portfolio insurance like it existed in 1987.
• According to our proprietary indicators, sentiment has reached the extremely negative zone in a short period of time.  This is not a precise timing indicator, but it is a contrary indicator.  In plain English this means that when sentiment reaches the extremely negative zone, the market tends to bounce.
• The recent drop in the stock market started due to interest rates rising.  Yesterday interest rates started pulling back, and they continue to pull back this morning.  This should support a bounce
• In 2008, indicators such as those described above failed several times.  However, since 2008 and early 2009, these indicators have tended to work.
• The main determining factor of where the market goes will depend on what the Fed announces on January 26.  See below for details.

Fed Meeting

• The Federal Reserve is meeting on January 25 – 26.
• The consensus is that the Fed will announce its intention to raise rates by 25 basis points in March and provide more insights into its plan to reduce its balance sheet.
• Typically, the momo crowd buys aggressively ahead of the Fed meeting.
• On the negative side for the stock market, there are calls for the Fed to do the following.
  • The Fed is still printing money by buying bonds.
  • There are calls for the Fed to stop printing right away.
  • There are calls for the Fed to immediately raise rates by 50 basis points.
  • There are calls for the Fed to immediately start reducing its balance sheet.

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 🔒 stocks in the early trade.

Gold

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

For longer-term, please see gold and silver ratings.

Oil

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

For longer-term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is 🔒.  Expect the market to open lower.  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 $1842, silver futures are at $24.55, and oil futures are $84.97.

S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4400, 4318, and 4200.

DJIA futures are down 165 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.

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

Worst Start Since 2008

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

Note the following:

• NASDAQ is experiencing the worst start since 2008.
• In 2008, the stock market lost one half of its value. Most in the momo crowd were wiped out or nearly wiped out. In 2008, The Arora Report subscribers generated a return of over 40% with astute timing, cash, hedges, and inverse ETFs.  Those who could short sell made a lot more.
• 2022 is not 2008 in many ways. For those interested in next-level information, we are planning a podcast in due course. The podcast will be available in Arora Ambassador Club.
• The biggest difference is that the Fed and the government are much bolder in their attempts to inflate the stock market bubble.  They do not have much of a choice due to the heavy national debt.
• In the short term, as we wrote in yesterday’s Afternoon Capsule, smart money is nibbling on depressed stocks and the momo crowd has started selling.  Often, but not always, this leads to a short term bounce.
• RSI on the chart is showing a positive divergence.
• The chart shows that stops have been mostly hunted.  This is a positive.
• On the negative side, the chart shows that QQQ made a lower low below the low band of the support/resistance zone.
• With the benefit of hindsight, the recent Arora call to raise hedges has proven spot on.
• It is important that investors understand the macro landscape.
  • In the short term, the market is oversold, but from a very long term perspective, the market is still very overbought.
  • Valuations are very high.
  • A lot of stock is in weak hands.
  • Inflation is running out of control.
  • The Fed is about to start tightening.
  • The politics before the November election is such that Biden will have difficulty recklessly borrowing and sending free money.
• It is more important than ever for investors to pay attention to the Morning and Afternoon Capsules.

Initial Jobless Claims

Initial claims came at 286K vs. 211K consensus.

China

Chinese banks cut interest rates.  Chinese internet stocks are experiencing a strong rally.

Momo Crowd And Smart Money In Stocks

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

Gold

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

For longer-term, please see gold and silver ratings.

Oil

API showed inventory build of 1.404M barrels vs. consensus of a draw of 1.367M barrels.

More important is that API is reporting for the third week in a row build in gasoline inventories.  This data is bearish, but oil is being driven by geopolitical considerations.

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

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 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 $1847, silver futures are at $24.43, and oil futures are $86.66.

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

DJIA futures are up 118 points.

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

Aggressive Buying

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

Note the following:

• Yield on bonds keeps on rising.
• The chart shows that there is aggressive buying in stocks this morning in the early trade. The buying is mostly by the momo crowd and especially aggressive in tech stocks.
• The chart shows that in spite of aggressive buying this morning, QQQ is still below the bottom band of the support/resistance zone.
• As shown on the chart, RSI is oversold.
• RSI on the chart shows a divergence.
• Technicals are set up for a bounce. However, if interest rates keep rising, more institutional selling may come in.

Germany

It is not only the United States, interest rates are also rising overseas with the exception of China.  Germany’s 10-year bund yield has become positive for the first time in three years.  The expectation is that ECB will start tightening its monetary policy.

Housing Starts

Housing starts came at 1.702M vs. 1.65M consensus.

Building permits came at 1.873M vs. 1.70M consensus.

Momo Crowd And Smart Money In Stocks

The momo crowd is aggressively 🔒 stocks.  Smart money is 🔒.

Gold

The momo crowd is 🔒 gold. Smart money is 🔒.

For longer-term, please see gold and silver ratings.

Oil

Oil had run up after an explosion at the crucial Iraq-Turkey pipeline.  The pipeline carries 450K barrels from Kirkuk to a port in Turkey.  The pipeline has now reopened.

The momo crowd is 🔒 oil.  Smart money is 🔒.

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 and bonds are range bound.

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 $1824, silver futures are at $23.83, and oil futures are $85.52.

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

DJIA futures are up 113 points.

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

Houthi Attack UAE

Please click here for a chart of oil ETF USO.

Note the following:

• Investors need to understand the impact of geopolitics on their portfolios.
• For a while, it has been mostly calm on the geopolitical front, but that may not last.
• Houthis control Yemen.
• Houthis are aligned with Iran.
• Iran is flexing its muscle to persuade the U.S. to lift sanctions.
• Houthis attacked the United Arab Emirates with missiles and drones.  The attack set off explosions and killed three people near the airport in Abu Dhabi.
• Why should you care about any of the foregoing?
  • The chart shows that oil has moved up as a result of the attack since the attack is in the oil rich region.
  • Higher oil results in higher inflation.
  • Higher inflation puts pressure on the Fed to raise rates.
  • Higher rates are negative for tech stocks, especially long duration speculative stocks.
• Interest rates are rising.
• Tech stocks are falling.
• The chart shows that oil is experiencing a solid move after the breakout.
• The chart shows divergence in RSI.  This indicates the probability of a pullback in the short term is high.
• Investors should be aware the ETF USO exhibits significant tracking error.

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

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

For longer-term, please see gold and silver ratings.

Oil

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

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 $1817, silver futures are at $23.50, and oil futures are $84.42.

S&P 500 futures resistance levels are 4713, 4770, and 4826: support levels are 4600, 4460, and 4400.

DJIA futures are down 302 points.