To gain an edge, this is what you need to know today.
Deploy Cash And Reduce Hedges
This is a reminder of the prior calls to deploy cash and reduce hedges. Please see prior posts for details.
New Historic High
Please click here for a chart of SPDR Dow Jones Industrial Average ETF Trust (ARCA: DIA).
Note the following:
- The chart shows Dow Jones Industrial Average has just hit a new historic high.
- The chart shows a breakout in DIA.
- The chart shows the trendline underlying the recent rally.
- The chart shows that the slope of the trendline is very steep, and now the stock market is going parabolic with even steeper ascent. Historically, such a move is not sustainable beyond a short time. Often, there is a pullback due to a reason no one is thinking about right now.
- The chart shows that RSI is very overbought and is diverging from the price. This indicates that the stock market is primed for a pullback as soon as momentum wanes.
- In The Arora Report analysis, the tentative call is to use pullbacks to buy stocks.
- Working against a pullback are three market mechanics that are pushing the stock market higher. These market mechanics are the following:
- Year end chase
- Positioning
- 0DTE
- Now in The Arora Report analysis, after Powell’s flip yesterday, the probability of another market mechanic of market maker gamma squeeze pushing the stock market higher has dramatically gone up. If a market maker gamma squeeze starts, the rate of ascent of the market will become steeper even after the recent steep rise. Understanding the market mechanic of gamma squeeze can give you a big edge. The easiest way to understand the market mechanic of gamma squeeze is to listen to the podcast titled “Market Mechanics: Impact Of Dealers’ Gamma Position Change On The Stock Market.”
- Yesterday, Powell completely flipped from what he said two weeks ago. Why did Powell flip? All you have to do is take a look at the dot plot that the Fed issued yesterday. In view of the dot plot, Powell had no choice but to flip. If Powell had not flipped, he would have looked like a fool.
- By flipping, Powell and the Fed are taking a big risk. The risk is of animal spirits going wild in the stock market. If the stock market rises parabolically, it will loosen financial conditions and potentially bring inflation back.
- The data released this morning does not support Powell’s flip. One has to wonder if the Fed did not have access to the data that was released this morning when they made the decision.
- The two most important pieces of data released this morning are retail sales and jobless claims.
- Retail sales shows that after a brief lull, consumer splurge is accelerating again. Here are the details:
- Headline retail sales came at 0.3% vs. -0.1% consensus.
- Retail sales ...