To get an edge, this is what you need to know today.
The Fed’s dilemma
Click here for an enlarged version of the graph SPDR S&P 500 ETF Trust Fund TO SPY which represents the benchmark stock market index S&P 500 (SPX).
Please note the following:
- The chart is a weekly chart to give investors a long-term perspective.
- The chart shows that the trend line is still intact.
- The Momo crowd will continue to buy unless there is a sustained break below the trend line for more than a week.
- The chart shows two weekly dojis. The doji is a candlestick pattern in which the opening and closing prices are very close to each other. A doji pattern indicates indecision. The graph shows two weeks of indecision.
- The latest candlestick shown on the chart is only for a partial week at the time of this writing. The Fed’s decision later today will determine how the candlestick will develop for this week.
- The two weekly dojis are instructive as the general belief is that the stock market is up, but the two dojis on the chart say otherwise.
- The FOMC statement will be released today at 2:00 PM ET, followed by Powell’s press conference at 2:30 PM ET.
- The momo crowd continued to buy shares aggressively. The momo gurus want the Fed to bend to them and start cutting rates, or at the very least make it clear that rate cuts are coming soon.
- Prudent investors need to understand that the Fed and the Momo gurus have very different goals.
- The only goal of momo gurus is to make the stock market go up in the short term in the guise of analysis.
- The Fed has a dual mandate: price stability and maximum employment.
- The Fed is concerned about the long-term economy of the entire United States. Momo gurus are only concerned about the short-term stock market.
- The Fed is facing several problems:
- The last two CPI numbers and the last PPI number were warmer than expected. The data shows that inflation is not falling as the Fed hoped.
- The economy remains stronger than the Fed had hoped given the high interest rates.
- Financial conditions have become easier despite the Fed keeping rates high.
- The easier financial conditions make it difficult to control inflation.
- Financial conditions have become easier than expected for three reasons.
- The stock market rose, generating a wealth effect.
- Home prices are rising, generating a wealth effect.
- The federal government continues to spend recklessly on a variety of programs, and that spending is making financial conditions easier.
- It’s as if the Fed is pushing the brake pedal on the monetary side and at the same time the government is pushing the accelerator on the fiscal side.
- Here’s the key question for investors: “What happens to the stock market if the Fed decides to do the right thing?”
- In the Arora Report’s analysis, the right thing for the Fed to do is to keep interest rates high until financial conditions tighten or inflation data improves or the economy weakens.
- The stock market is not prepared for the Fed to do the right thing. If the Fed decides to do the right thing, expect a pullback in the stock market. On the other hand, if the Fed decides to bow to the momo crowd, expect the rally to continue, potentially reaching 5400 in the S&P 500.
- Guidance could change after Fed meeting.
UK
UK data often leads US data in the same direction. In the UK, the consumer price index (CPI) turned out to be colder than expected. Here are the details:
- Headline CPI came in at 0.6% MoM versus 0.7% expected.
- Headline CPI stood at 3.4% year-on-year versus 3.5% expected.
- Core CPI came in at 0.6% MoM versus 0.7% expected.
- Core CPI came in at 4.5% year-over-year versus the expected 4.6%.
Magnificent Seven Money Streams
In early trades, money flows are positive Meta Platform Inc HALF AND Tesla Inc TSLA.
In early trades, money flows are neutral Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Microsoft Corp MSFTAND NVIDIA Corp NVDA.
In initial trades, money flows are negative the Apple company AAPL.
At the beginning of the trade, the money flows are mixed SPDR S&P 500 ETF Trust Fund TO SPY AND Invesco QQQ Trust Series 1 QQQ.
Momo Crowd and Smart Money in stocks
The momo crowd buys shares early in the trade. Smart money is idle in early trades.
Gold
The momo crowd is inactive in the early trades. Smart money is idle in early trades.
For the long term, see gold and silver ratings.
The most popular gold ETF is SPDR Gold Trust GLD. The most popular ETF for silver is iShares Silver Trust SLV.
Oil
API crude inventories traded at 1.519 million barrels versus a consensus of 0.077 million barrels.
Momo crowd sells oil in early trades. Smart money is idle in early trades.
For long term, see oil classifications.
The most popular oil ETF is US Oil ETF USE.
Bitcoin
Bitcoin Bitcoin/USD it is limited to the range.
Protection band and what to do now
It is important for investors to look forward and not in the rearview mirror.
Consider continuing to hold existing good positions, long-term. Based on your individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades, as well as short- and medium-term hedges and short-term hedges. 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 liquidity to your hedges. The high protection band is suitable for those who are elderly or conservative. The low end of protection is suitable for those who are younger or aggressive. If you do not hedge, your total liquidity level should be higher than above but significantly lower than cash plus hedges.
It is worth remembering that you cannot take advantage of new upcoming opportunities if you do not have sufficient liquidity. When changing hedge levels, consider changing partial stop quantities for stock (non-ETF) positions; consider using wider stops on the remaining quantities and also allowing more room for high beta stocks. High beta stocks are those that move more than the market.
Traditional 60/40 wallet
Probability-based, inflation-adjusted risk compensation is not conducive to the strategic allocation of long-dated bonds at this time.
Those who wish to stick to the traditional allocation of 60% to stocks and 40% to bonds may consider focusing only on high-quality bonds and bonds with durations of seven years or less. Those looking to make their investments more sophisticated may want to consider using bond ETFs as tactical, not strategic, positions at this time.
The Arora Report is known for its accurate calls. The Arora Report correctly called the great AI rally before anyone else, the new bull market of 2023, the bear market of 2022, the new stock market highs right after the virus low in 2020, the virus decline in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Click here to sign up for the free Generate Wealth Forever newsletter.
This article comes from an unpaid freelancer. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.