By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
58% Gain In 4.5 Months
Please click here for a chart of inverse bond ETF TBT.
Note the following:
- On April 8, we shared with you the rare occurrence of TBT moving up 32% from its low in about four months. TBT is a leveraged inverse ETF that moves up when interest rates rise. Such a strong move up in yield should have, in theory, caused more selling pressure in stocks than had been seen at that time.
- The chart shows that now TBT has gained 58% since its recent low in about 4.5 months. This is the fastest move in recent history.
- The yield on 30-year Treasuries is at 2.99% and on 10-year Treasuries is at 2.91% as of this writing. The interest rate on a 30-year mortgage is 5.25%.
- Based on the foregoing, per most conventional models, the S&P 500 should have breached the recent lows and fallen to about 4000. S&P 500 is trading at 4384.75 as of this writing.
- The reason for the strength in the stock market in the face of rising yields is due to the recency bias among the momo crowd. The recency bias is two fold.
- All dips are buying opportunities.
- The stock market always makes new highs in a short time.
- If the foregoing was not enough, the Japanese yen is now at 128 against the dollar. The Japanese yen has been experiencing the longest series of losses in 50 years. Normally, such strength would have put pressure on the stock market, but the momo crowd is oblivious and keeps on buying.
- Some relief may be on the way. The chart shows that RSI on TBT is at 97.13. Further, RSI has stayed this overbought for several days. This is unprecedented in recent history. When something is this overbought, it tends to pullback. If such a pullback occurs, that may encourage momo gurus to urge their followers to buy stocks more aggressively.
- As momo buying is unfazed, smart money continues to sell into the strength. What happens next will come down to who wins the battle – momo crowd or smart money.
- Irrespective of who wins the battle, prudent investors should look at this situation as a war with several battles.
- The sum total of the foregoing as an actionable item is in the “Protection Bands And What To Do Now” section below.
Housing Starts
Housing Starts came at 1.793M vs. 1.7M consensus.
Building permits came at 1.873M vs. 1.84M consensus.
These are very strong numbers in the face of rising interest rates. The strength is in multifamily housing.
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
There is disappointment in gold that it was not able to overcome the psychological resistance at $2000.
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 🔒 oil in the early trade.
For longer-term, please see oil ratings.
Bitcoin
There is bullishness in bitcoin on a spot bitcoin ETF to start trading in Australia next week. The expectation is that this is a positive development towards the SEC eventually allowing a spot bitcoin ETF in the United States. Such a development will significantly increase demand for bitcoin.
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 $1970, silver futures are at $25.99, and oil futures are $104.90.
S&P 500 futures resistance levels are 4400, 4460 and 4600: support levels are 4318, 4200 and 4000.
DJIA futures are down 11 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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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 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.
