Powell Reacts To Political Pressure On Interest Rates – Momo Gurus Wrong Again

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

Powell Pushes Back

Please click here for an enlarged version of the chart of iShares 20 Plus Year Treasury Bond ETF TLT.

Note the following:

• The chart shows long term Treasuries pulled back on Friday on the strong jobs report. For details of the jobs report, please see Friday’s Morning Capsule.
• The chart shows Treasuries pulled back further on Powell’s interview on 60 Minutes.
• The chart shows that the sell off in the early morning on Powell’s interview is being bought as of this writing.
• The chart shows that during this swing, Treasuries approached the low band of the upper resistance zone but did not penetrate the upper resistance zone before a pullback. From a technical analysis perspective, this is a short term negative.
• RSI on the chart shows that the overbought condition has been relieved. Now, RSI shows that Treasuries can go either way.
• The chart shows high volume on Thursday just before the jobs report, indicating high conviction among market participants that the jobs report would be weak.
• The chart shows that when the jobs report came significantly stronger than expected and the consensus among market participants was proven wrong, the volume was lower. This indicates a combination of the following two:
  • Some market participants are like deer in the headlights. They were wrong, and now they are frozen, unable to figure out what to do.
  • Many market participants simply are not paying attention to the data.
• Powell gave an interview on 60 Minutes and further pushed back on the notion of rate cuts in March. Powell said that inflation was coming down but the Fed needed more confidence.
• Prudent investors need to ask a very simple question, “Why did Powell feel the need to go on 60 Minutes and speak directly to the American public?” In The Arora Report analysis, Powell is feeling political pressure from both Republicans and Democrats to cut rates. Of course, there is also pressure from stock and bond market participants to cut rates. The only effective way for Powell to push back is to speak directly to the American public. Powell clearly understands that the American public wants what is best for America. This is in contrast to politicians who want to get reelected and Wall Street, where making money often comes first.  
• In The Arora Report analysis, Powell does not want to repeat Burns’ blunder. We have been sharing with you for a while that the memory of Burns’ blunder is going to stop Powell from prematurely cutting interest rates. 
• The key question for investors is now that momo gurus have been proven wrong again about six interest rate cuts with the first one starting in March, what are momo gurus going to do?  It is important for investors to pay attention to momo gurus, even though momo gurus are almost always wrong, because they have a large following and their followers tend to act without analysis.
• ISM Services PMI will be released at 10am ET. This is likely to be market moving data.
• Among important earnings, Caterpillar Inc. CAT earnings were better than the whisper numbers and consensus. McDonald's Corp MCD earnings were slightly worse than the whisper numbers. CAT and MCD earnings are important because they are part of the Dow Jones Industrial Average.
• As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the protection band.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc AAPL, Alphabet Inc Class C GOOG, and NVIDIA Corp NVDA,

In the early trade, money flows are neutral in Microsoft Corp MSFT.

In the early trade, money flows are negative in Amazon.com, Inc. AMZN, Meta Platforms Inc META, and Tesla Inc TSLA.

In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust Series 1 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.

Gold

In The Arora Report analysis, Powell’s interview shows that the Fed is being responsible in not caving to pressure from politicians and Wall Street. This is negative for gold in the short term.  

The momo crowd is selling 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 GLD. The most popular ETF for silver is iShares Silver Trust SLV. 

Oil

Oil had fallen last week on rumors that a cease fire deal had been reached in the Middle East between Hamas and Israel. Those reports have proven to be inaccurate. As a result, oil is seeing smart money buying and momo crowd selling in the early trade.  

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD is being bought on positive sentiment emanating from last week’s blowout earnings from META and AMZN.

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.

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 2008 financial crash, the start of a mega bull market in 2009, the COVID crash, the post-COVID bull market, and the 2022 bear market. Please click here to sign up for a free forever Generate Wealth Newsletter.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.