Benzinga - by The Arora Report, Benzinga Contributor.
To gain an edge, this is what you need to know today.
CPI And FOMC Ahead Please click here for an enlarged chart of iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT).
Note the following:
- The direction of bonds tomorrow will likely determine the direction of the stock market.
- The chart shows TLT is below the low band of the resistance zone.
- The chart shows that going into important data, volume has stayed low, indicating lack of conviction.
- Volume in S&P 500 has also stayed low, indicating lack of conviction ahead of the data.
- If bonds approach the mini support zone, then stocks will fall. If bonds return to the resistance zone, then stocks will fly.
- Bonds will move on a rare data day tomorrow – both Consumer Price Index (CPI) and FOMC rate decision will be released.
- CPI will be released at 8:30 am ET. Here are the details:
- The consensus for the headline CPI is 0.1%.
- The consensus for the core CPI is 0.3%.
- The Fed is meeting today and tomorrow. The Fed will announce its rate decision tomorrow at 2pm ET, followed by Powell’s press conference at 2:30pm ET.
- The current consensus is that the Fed will leave interest rates unchanged. The CPI data could influence the Fed’s decision as the data will be released during the FOMC meeting.
- Here is what we will be paying close attention to at The Arora Report:
- The language of the FOMC statement
- Dot plot. The dot plot contains projections from FOMC members and is released every three months.
- Powell’s press conference
- In yesterday’s Morning Capsule, we wrote:
The election results from Europe are dampening the sentiment across the globe.
- In the first opinion poll since Macron called for a snap election, forecasts project the far-right National Rally will win the election but will not gain absolute majority.
- French government bonds are tumbling, leading to a selloff across Europe.
- In the early trade in the U.S., stocks are being sold due to dampening sentiment emanating from Europe.
In the early trade, money flows are neutral in Apple Inc (NASDAQ: AAPL), Amazon.com, Inc. (NASDAQ: AMZN), Alphabet Inc Class C (NASDAQ: GOOG), and NVIDIA Corp (NASDAQ: NVDA).
In the early trade, money flows are negative in Meta Platforms Inc (NASDAQ: META) and Microsoft Corp (NASDAQ: MSFT).
In the early trade, money flows are negative in SPDR S&P 500 ETF Trust (ARCA:SPY) and Invesco QQQ Trust Series 1 (NASDAQ: QQQ).
Momo Crowd And Smart Money In Stocks The momo crowd is buying stocks in the early trade. Smart money is inactive in the early trade.
Note for new investors: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money.
Gold The momo crowd is like a yoyo in gold in the early trade. Smart money is inactive in the early trade.
For longer-term, please see gold and silver ratings.
The most popular ETF for gold is SPDR Gold Trust (ARCA:GLD). The most popular ETF for silver is iShares Silver Trust (ARCA:SLV).
Oil The momo crowd is like a yoyo in oil in the early trade. Smart money is inactive in the early trade.
For longer-term, please see oil ratings.
The most popular ETF for oil is United States Oil ETF (ARCA:USO).
Bitcoin Bitcoin (CRYPTO: BTC) is seeing selling and trading around $67,000.
Protection Band And What To Do Now It is important for investors to look ahead and not in the rearview mirror.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to 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 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.
A protection band of 0% would be very bullish and would indicate full investment with 0% in cash. A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.
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.
Traditional 60/40 Portfolio Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.
Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of seven year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.
The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop 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. Please click here to sign up for a free forever Generate Wealth Newsletter.
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