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

Biggest Current Account Deficit

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:

• Current account balance came at -$291.4B vs. -$279B consensus.  This is the biggest current account deficit since 1960.  Current account deficit is the net of export, imports, and transfer of capital.  In simple terms, the United States transferred significant wealth to other countries, primarily China.  This is one mechanism through which China is becoming relatively richer and the United States is getting relatively poorer.
• This morning in the early trade the momo crowd was aggressively buying stocks.  The release of the big current account deficit number took steam out of the rally and dampened the sentiment.
• Expect the momo crowd to buy the dip and try to run up the stock market again.
• The chart shows that the stock market is at the low band of the support/resistance zone.
• The chart shows that in spite of aggressive buying  by the momo crowd, the market has not made significant progress.
• RSI on the chart shows that it is triggering a very mild buy signal.
• Powell is in front of Congress again.  Q&A has the potential to move the market.

Jobless Claims

Initial claims came at 239K vs. 230K consensus.

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

API came at a build of 5.607M barrels vs. consensus of a draw of 1.433M barrels. This is the biggest inventory rise since mid February.  A part of the rise is due to the Department of Energy releasing 6.8M barrels from the strategic petroleum reserve in the prior week.

EIA data will be released later today and may be market moving.

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒 oil 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 🔒 as the market direction will depend on Powell’s Q&A.  However, expect the market to open higher.  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 2-year Treasury yield briefly dipped below 3%.

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 $1834, silver futures are at $21.19, and oil futures are $106.15.

S&P 500 futures resistance levels are 3860, 3950 and 4000: support levels are 3630, 3600 and 3520.

DJIA futures are up 72 points.

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

The Must See Chart

Please click here for a chart of the Fed funds rate going back to 1972.

Note the following:

• The most important point for the markets right now is the terminal Fed rate. The second most important is how fast the Fed gets to the terminal rate.
• The chart shows the Fed funds rate at different times in history. The take away from the chart is that there is a historical precedence for the terminal rate going much higher than what is discounted in stock prices right now.
• The stock market is discounting a terminal rate of about 2.5%. One big problem with the assumption about terminal rate by the market is that the Fed has already told us that the rate will be about 3% by the end of 2022 and 3.3% in 2023.
• How good is the Fed at predictions? As late as March, the Fed was indicating a terminal rate of 1.75%.  The Fed has jumped from 1.75% to 3.3% in a matter of three months.
• Take a close look at the chart. There is not insignificant probability of the terminal rate going to 4% – 5% if inflation does not cool.
• If the Fed terminal rate goes to 4% – 5%, S&P 500 can easily fall below 3,000. Before you get too concerned, it is important to understand that this is just one credible scenario. There are many scenarios that would result in the stock market running up to S&P 500 level of 4,500.
• Be very careful when listening to the talking heads in the media who claim to know what the terminal Fed rate will be. Plus, Powell himself has told the world that the Fed with all of its intellectual horsepower does not know what the terminal Fed rate will be. The truth is that nobody knows.
• There are two parts to inflation that we are seeing – supply constraints and demand.
• There is nothing that the Fed can do about supply constraints. The only thing that the Fed can do is reduce  demand.
• In our analysis at The Arora Report, the supply constraints are likely to be resolved relatively soon. The high frequency leading data that we are seeing at The Arora Report is showing that the Fed’s actions are already beginning to reduce  demand.
• If it was not for the stickiness of wages and rents, our models could predict a terminal Fed funds rate and where the stock market is going with a fairly high probability.  However, we expect wages to be sticky. They may not rise from here, but bosses are not likely to go to workers and ask them to take wage cuts to pay for the free money bandwagon that our government was on for a long time. We expect rents to continue to increase, but we expect home prices to fall.  The reason is that over the last two years, rents did not keep up with rising home prices.
• There is another important element that may constrain the Fed – more than $30 trillion of national debt. If interest rates continue to rise, the government is not going to be able to make interest payments without causing severe pain for investors and those in the lower income group who depend on government programs. All investors should consider listening to the very important podcast “Protect Yourself: The Dirty Secret Of The President And The Fed.”
• The solution is not to get out of the market. The Fed is talking about reducing future inflation. They are not even talking about taking back a part of the inflation that has occurred over the last two years.  The fact is that your dollars have eroded by over 15% in real terms in the last two years.
• To guard against erosion of the dollar, you have no choice but to invest.  
• The solution is to become more knowledgeable and more nimble.
• Powell is testifying before the Senate. His testimony and Q&A may provide some insights into the terminal Fed funds rate and the speed of the hikes towards the terminal rate.
• The biggest potential danger to your wealth is a prolonged period of stagflation. This is why it is important for investors to become knowledgeable about stagflation.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade. There is angst about Powell’s testimony and fear of a recession.

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

Oil is down about 4.5% as of this writing on recession fears and Biden proposing a federal gas tax holiday. The federal tax on gas is $0.18 per gallon. The proposal requires approval by Congress.

The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 oil 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 🔒 because the market will depend on Powell’s testimony. 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 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 $1840, silver futures are at $21.45, and oil futures are $104.78.

S&P 500 futures resistance levels are 3770, 3860 and 3950: support levels are 3630, 3600 and 3520.

DJIA futures are down 308 points.

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

Quarter End Rebalancing

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 compares SPY with NASDAQ 100 ETF QQQ and bond ETF TLT.
• The chart shows that so far in this quarter QQQ has lost 24.57%, SPY has lost 19.91%, and TLT has lost 14.74%.
• In quarter end rebalancing, investors will sell bonds and buy stocks. This is  an age old tradition. The argument is that stocks should be bought because they have gone down more than bonds.
• Wall Street is front running the rebalancing.
• The market has been very oversold. As the market moves up, the momo crowd is buying, believing that the bottom is in. Of note is that the momo crowd has called the bottom dozens of times so far this year, only to see the market go lower.
• If the market moves further, there is potential for a vicious short squeeze.
• As a full disclosure, a signal was given for super aggressive investors on Friday before the big rally that is occurring to buy triple leveraged ETF TQQQ as a short term trade. In the early trade, the TQQQ trade is profitable.
• Over the long weekend, there have been many warnings of a potential severe recession. At the same time, permabulls are claiming that a recession can be avoided.
• The sum total of the foregoing as an action item is in 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

Over the weekend, bitcoin dipped below $18,000. This was a big blow to bitcoin bulls as they were counting on the support at $20,000 holding.

There are unverified rumors that when bitcoin dipped Binance, a large crypto exchange, and other exchanges bought billions of dollars worth of bitcoin to prevent bitcoin from going into a freefall. As the price started moving up, dip buyers jumped in hoping that the bottom was in. As bitcoin moved above $20,000, it started a vicious short squeeze.

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 $1839, silver futures are at $21.72, and oil futures are $110.07.

S&P 500 futures resistance levels are 3770, 3860 and 3950: support levels are 3630, 3600 and 3520.

DJIA futures are up 429 points.