WEEKLY MARKET DIGEST: LUNACY OF BUYING PRECIOUS METALS ON HIGH YUAN FIX, OIL PEAK AND ICAHN APPLE FLUSH $DIA $GLD $QQQ $SLV $SPY $TBF $TBT $USO

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WEEKLY MARKET DIGEST: LUNACY OF BUYING PRECIOUS METALS ON HIGH YUAN FIX, OIL PEAK AND ICAHN APPLE FLUSH $DIA $GLD $QQQ $SLV $SPY $TBF $TBT $USO

 

(The Weekly Digest reproduces the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers. ) 

GOOD EUROZONE DATA, OIL SEASONALITY, LUNACY OF BUYING PRECIOUS METALS ON HIGH YUAN FIX AND ICAHN FLUSH

This is what you need to know today.

Eurozone

Eurozone GDP came at 0.6% vs. 0.4% consensus.  Unemployment fell to 10.2%.  Inflation fell to -0.2% vs. 0.0% consensus.

Euro is strengthening against the dollar.

Oil Seasonality

As investors get more bullish about oil, it is important to keep in mind that oil market has a seasonality.  Last year oil peaked on May 7th.

Lunacy Of Buying Precious Metals On High Yuan Fix

Overnight Chinese yuan was fixed 50bp+ against the dollar.  This is the biggest one day increase since 2005 when yuan was delinked from the dollar.

Momo crowd has been aggressively buying gold, silver and precious metal miners on the news.  On the surface, there is merit to such buying because precious metals are priced in dollars and stronger yuan means weaker dollar.  However, the momo crowd is oblivious to a huge factor in precious metal demand.  Chinese have been buying precious metals because they feared their currency would be devalued.  As yuan rises, this need to buy precious metals goes away.

Lunacy In Other Commodities

Move in other commodities is becoming completely divorced from the fundamentals.  Iron ore is jumping 6% and copper is up 2.4%.

Icahn Flush

Yesterday afternoon on the TV, famed investor Carl Icahn declared that he had sold Apple and was very negative on the U. S. stock market.  Selling on his proclamation caused intraday S&P support in the zone of 2082 – 2087 to break.  On the break, technical sellers stepped in causing a bigger move down.

Markets

Gold, silver, oil, and currencies are running higher.

Bonds and interest rates are range bound.

Our very, very short-term early stock market indicator is neutral, the market is likely to start out in the red.

Gold futures are at $1279, silver futures are at $17.79, and oil futures are $46..

S&P 500 resistance levels are 2100, 2111 and 2132; support levels are 2063, 2038, and 2017.

DJIA futures are down 63 points.

What To Do Now?

It is important for investors to look ahead and not in the rear view mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding cash or treasury bills 30 – 42%, and short to medium-term hedges of  30%.

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.

A Reminder 

As our long time subscribers know well, that during the 2008 and early 2009 market crash, when stock market lost about 50%, subscribers to The Arora Report made money by the boat load.  For long only investors, this remarkable performance was achieved by using inverse ETFs.

Our models do not expect a repeat of 2008.  In the most likely worst case, there may be a garden variety bear market that typically occurred every 18 to 24 months prior to the recent six-year market run.

Individual Trades

Please click on Home on the left side of the Menu.  Scroll down on the Home Page for individual trades.

Click on the Search by Symbol/Tag on the right hand side and click on the symbols of interest.

YEN ROCKETS LEADING GOLD HIGHER AND STOCKS LOWER

This is what you need to know today.

At the beginning of the week, we shared with you that the most important event of the week was Bank of Japan announcement.

Yen is leading, gold and stocks are following. The correlation is crystal clear from the annotated tick chart.

Please click here for an annotated tick chart of yen, gold and stocks.

The chart marks the time when BOJ made its announcement. Yen immediately gapped up.  Gold followed to the upside and stocks followed to the downside.  The chart uses the futures and not ETFs because popular ETFs were not trading at the time of BOJ announcement.   Investors who do not use futures can look at the longer term correlation by plotting three ETFs together: gold ETF GLD, S&P 500 ETF SPY, and yen ETF FXY .

See also  WEEKLY STOCK MARKET DIGEST: PRUDENT INVESTORS HEEDING EXTREME SENTIMENT

The chart also shows that as Europe woke up, yen took another leg higher and so did gold.

This is the biggest overnight move in yen in five years. Japan’s equity index Nikkei 225 fell 3.61%.

What did BOJ do to cause such a violent reaction? The answer will astound the casual reader.  BOJ did absolutely nothing.

The strong moves in yen, gold and stocks are due to positioning of big money in advance of BOJ announcement.

At the beginning of the week, there was no consensus; analysts were all over the place in their predictions. As the week progressed, a consensus developed that BOJ will ease.  There was merit to the consensus in that the economic data coming out of Japan was extraordinarily weak. Consumer prices in Japan fell 0.3% in March year over year.  Household spending fell 5.3% in March year over year; this is not just an esoteric number.  Household spending includes what ordinary Japanese spend on food, clothes, and other living expenses.

The reason behind U. S. stocks falling has to do with the carry trade. In the carry trade, large investors borrow in yen and invest in U. S. stocks.  When yen rises, these investors have to sell U. S. stocks to pay back their borrowing.

The reason for gold’s rise with the yen has been previously explained.

Please scroll down for What To Do Now section.

Markets

Rising yen is taking commodities including oil higher.

Interest rates and bonds are range bound.

Our very, very short-term early stock market indicator is negative.

Gold futures are at $1258, silver futures are at $17.41, and oil futures are $45.33.

S&P 500 resistance levels are 2100, 2111 and 2132; support levels are 2063, 2038, and 2017.

DJIA futures are down 131 points.

What To Do Now?

Rising yen has significant impact on a number of positions in all four services.  Here are the key questions, “Is the move in yen only very, very short-term, is the medium-term trend still intact, and will BOJ’s move cause sentiment changes in various markets?”

As our long time subscribers know well, our calls are based on rigorous analytical framework and proven algorithms.  There is a lot of number crunching to be done and new trading data is needed.  We will be back to you with more posts on individual positions as results of the new analysis become available.

It is important for investors to look ahead and not in the rear view mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding cash or treasury bills 30 – 42%, and short to medium-term hedges of  30%.

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.

A Reminder 

As our long time subscribers know well, that during the 2008 and early 2009 market crash, when stock market lost about 50%, subscribers to The Arora Report made money by the boat load.  For long only investors, this remarkable performance was achieved by using inverse ETFs.

Our models do not expect a repeat of 2008.  In the most likely worst case, there may be a garden variety bear market that typically occurred every 18 to 24 months prior to the recent six-year market run.

Individual Trades

Please click on Home on the left side of the Menu.  Scroll down on the Home Page for individual trades.

Click on the Search by Symbol/Tag on the right hand side and click on the symbols of interest.

FED DAY, TECH WRECK, ELECTION CLARITY AND OIL BREACHES $45

This is what you need to know today.

Fed

FOMC will release its policy statement at 2:00 pm ET.  There is no press conference.  Please stay  extra alert as it has potential to be a market moving event in the unlikely case of some hawkishness in the statement.

Tech Wreck

Even though overall earnings this season are coming better than the consensus, the tech sector is a wreck. Over 50% of tech earnings have been materially below consensus.  The latest notable disaster is Apple. The stock is down about 8%, in large part due to projecting lower gross margins.

See also  HOTTER PRODUCER INFLATION AND DECLINING RETAIL SALES – MOMO IN LA LA LAND, OIL DEFICIT PREDICTION

Election Clarity

After five northeastern primaries, Trump declared  himself the presumptive nominee and Clinton is well on her way to secure the nomination on the other side.

Market

Oil breached $45 on bullish API data; API reported a draw down of 1.1 M barrels in crude inventories vs. a consensus of 2.4 M barrel build.

The U. S. government data on oil inventories will be released at 10:30 am ET; this data is considered more authoritative than the API data.

Consistent with the historical patterns, the momo crowd is running up gold and silver going into the FOMC statement.

Aussie fell the most in two months on negative consumer price data.

Yen is slightly weaker.

Interest rates and bonds are range bound.

Our very, very short-term early stock market indicator is neutral.

Gold futures are at $1250, silver futures are at $17.36, and oil futures are $45.10.

S&P 500 resistance levels are 2100, 2111 and 2132; support levels are 2063, 2038, and 2017.

DJIA futures are down 41  points.

What To Do Now?

It is important for investors to look ahead and not in the rear view mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding cash or treasury bills 30 – 42%, and short to medium-term hedges of  30%.

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.

A Reminder 

As our long time subscribers know well, that during the 2008 and early 2009 market crash, when stock market lost about 50%, subscribers to The Arora Report made money by the boat load.  For long only investors, this remarkable performance was achieved by using inverse ETFs.

Our models do not expect a repeat of 2008.  In the most likely worst case, there may be a garden variety bear market that typically occurred every 18 to 24 months prior to the recent six-year market run.

Individual Trades

Please click on Home on the left side of the Menu.  Scroll down on the Home Page for individual trades.

FED AHEAD, WEAK DURABLES AND DELUGE OF EARNINGS

 This is what you need to know today.

Fed

FOMC starts its two day meeting today.  Policy will be announced tomorrow.  The consensus is of no rate increase, we agree.

We will be carefully parsing the tea leaves to see what the Fed says about balance of risks and growth to get hints for future direction.

Durable Goods

March Durable Goods, Ex-Trans came at -0.2% vs. +0.5% consensus.  This is a very volatile series.  It is best to look at a moving average.

Housing

Case-Shiller 20 City Index y/y came at 5.4% vs. 5.6% consensus.

Deluge Of Earnings

49 of S&P 500 companies are reporting earnings today.

So far this earnings season, about 70% of the companies have beaten lowered consensus estimates.

Brazil

Brazilian Senate has convened to pick members of the impeachment panel.

Markets

Oil is rallying after yesterday’s loss.

Gold is attempting to rally after yesterday’s failed rally.

Yen is slightly weaker against the dollar.

Euro is strengthening over the last hour.

Malaysian ringgit falls for the fourth day as 1MDB defaults on bonds.

Interest rates and bonds are range bound.

Copper and other base metals are retreating. Iron ore is extremely overbought due to speculation in China

Our very, very short-term early stock market indicator is neutral.

Gold futures are at $1240, silver futures are at $17.01, and oil futures are $43.36.

S&P 500 resistance levels are 2100, 2111 and 2132; support levels are 2063, 2038, and 2017.

DJIA futures are up 33 points.

What To Do Now?

It is important for investors to look ahead and not in the rear view mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding cash 26 – 42%, and short to medium-term hedges of  25%.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.

See also  APPLE, ALPHABET, AND META UNDER E.U. PROBE; INTEL AND AMD BANNED; FED’S BOSTIC SAYS ONE RATE CUT

A Reminder 

As our long time subscribers know well, that during the 2008 and early 2009 market crash, when stock market lost about 50%, subscribers to The Arora Report made money by the boat load.  For long only investors, this remarkable performance was achieved by using inverse ETFs.

Our models do not expect a repeat of 2008.  In the most likely worst case, there may be a garden variety bear market that typically occurred every 18 to 24 months prior to the recent six-year market run.

Individual Trades

Please click on Home on the left side of the Menu.  Scroll down on the Home Page for individual trades.

Click on the Search by Symbol/Tag on the right hand side and click on the symbols of interest.

A MAJOR MOVER AHEAD

This is what you need to know today.

Bank Of Japan

The most important event ahead is Bank of Japan’s next policy announcement on Thursday.

The days when American investors could be successful with stocks, bonds, gold and other commodities without understanding major international central bank policies are long gone.  Even for those investors who are invested only in American stocks, BOJ announcement may have a major effect.

Following are the reasons for BOJ announcement to be a major mover of markets:

  • There is no consensus projection.  When there is no consensus projection, major moves are more likely.
  • There is a wide range of realistic outcomes.
  • It is impossible to determine with any degree of certainty positioning of big money ahead of the announcement.

Let us quickly analyze two potential scenarios.

In the event of significant easing accompanied by uber dovish statement, the following are likely to occur.

  • Yen will fall
  • Japanese stocks will rocket up
  • U. S. stocks will fall
  • Gold will fall
  • Commodities will fall
  • Bonds will go up
  • Asian stocks will fall

In the event of no action accompanied by a soft statement, the following are likely to occur.

  • Yen will strengthen
  • Japanese stocks will fall
  • U. S. stocks will rise
  • Gold will go higher
  • Commodities will go higher
  • Bonds will fall
  • Asian stocks will rise

Markets

The momo crowd is back again aggressively buying gold and silver.

Oil is weaker as major players look at over supply.

Interest rates, bonds and currencies are range bound.

Our very, very short-term early stock market indicator is neutral.

Gold futures are at $1234, silver futures are at $16.89, and oil futures are $42.43.

S&P 500 resistance levels are 2100, 2111 and 2132; support levels are 2038, 2017, and 2000.

DJIA futures are down 31 points.

What To Do Now?

It is important for investors to look ahead and not in the rear view mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding cash or treasury bills 30 – 42%, and short to medium-term hedges of  30%.

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.

A Reminder 

As our long time subscribers know well, that during the 2008 and early 2009 market crash, when stock market lost about 50%, subscribers to The Arora Report made money by the boat load.  For long only investors, this remarkable performance was achieved by using inverse ETFs.

Our models do not expect a repeat of 2008.  In the most likely worst case, there may be a garden variety bear market that typically occurred every 18 to 24 months prior to the recent six-year market run.

Individual Trades

Please click on Home on the left side of the Menu.  Scroll down on the Home Page for individual trades.

Click on the Search by Symbol/Tag on the right hand side and click on the symbols of interest.

 

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