WEEKLY MARKET DIGEST: PANIC BUYING ON PERFORMANCE CHASE BY MONEY MANAGERS, SMART MONEY SELLS GOLD $DIA $GLD $QQQ $SLV $SPY $TBF $TBT $USO

   WEEKLY MARKET DIGEST: PANIC BUYING ON PERFORMANCE CHASE BY MONEY MANAGERS, SMART MONEY SELLS GOLD $DIA $GLD $QQQ $SLV $SPY $TBF $TBT $GDX $EUO $FXE $NUGT $USO

Weekly Digest from The Arora Report is popular among serious investors and money managers because they have found studying insights from the prior week gives them an edge over the coming weeks. Here is the day by day rundown from the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers of The Arora Report

Please scroll down for the section What To Do Now.

FED MEETING AHEAD, BIG OIL MEETING, KOREAN PRESIDENT IMPEACHED

This is what you need to know today.

Performance Chase

Performance chase by money managers to meet their benchmarks continues. On one hand this trend is likely to continue until the end of December.  On the other hand the market is very overbought.  It is not uncommon for sophisticated hedge funds who have already exceeded their benchmarks, to become aggressive short sellers under such conditions.  It will take only a couple of big hedge funds to keep the ball rolling on the downside.  Without such an occurrence, it is rally on.

Fed Meeting Ahead

FOMC meets next week.  The consensus is that they will raise rates by 0.25%.  Assuming there is a rate increase, the market moving event will be any hint of future rate direction.

Gold

Gold is coming under pressure this morning.  Smart money is a light seller.  Smart money is unwinding precious metal positions taken last Friday.

Big Oil Meeting

There is a big oil meeting this weekend between OPEC and non-OPEC oil producers.  As of this writing there is optimism in oil circles.  Traders are running oil up on the optimism.

Korean President Impeached

South Korean Parliament has impeached President Park with an overwhelming majority.

The important insight for investors is that her likely successor may challenge globalization like Trump is doing in the United States.  Will a rally in Korea ensue?  We do not know the answer at this time, but we do know that if there is a significant pull back in Korea, it will be a buying opportunity.  A signal on Korea will be given in ZYX Emerging.

Markets

Our very, very short-term early stock market indicator is neutral but expect an attempt at another push up.

Dollar is strong.

Dollar yen has broken psychological level of 115.

Euro dollar has broken psychological level of 1.06.

Interest rates are ticking up and bonds are ticking down.

Gold futures are at $1168, silver futures are at $17.07, and oil futures are $51.22.

S&P 500 resistance levels are 2250, 2288 and 2300; support levels are 2222, 2200, and 2180.

DJIA futures are up 29 points.

PEFORMANCE CHASE PREDICTION PROVEN SPOT ON, SUPER MARIO COMES THROUGH BUT TAPER KILLS BUDDING GOLD RALLY, CHINA LIFT MAY DRAW TRUMP IRE

This is what you need to know today.

Performance Chase

Only three days ago we predicted that performance chase is on.  Yesterday’s about 300 point DJIA move shows the prediction was spot on.  We wrote on Monday’s Morning Capsule,

Performance chase is on. A large number of money managers are lagging their benchmarks this year. Such money managers have every incentive to buy on the slightest dip to catch up to their benchmarks before the year end.

A performance chase buy program triggered the rally and performance chase turned the rally into a buying panic.  This was yesterday, now let us look ahead.  Please see last night’s post titled, TWO RARE CHART OCCURRENCES SHOWING PANIC SAYS DOW 20,000 MAY END THE MOVE.

Super Mario

Mario Draghi, ECB chief, is known as Super Mario because of his ability to move markets his way.  ECB left rates unchanged as expected.

The concern was if Draghi would extend QE beyond March.  The consensus was an extension.  Super Mario came through with an extension to December 2017 but is tapering to $60 billion per month from $80 billion per month.

When the Fed tapered in the United States, markets threw a tantrum.  We will be carefully watching to see how markets react to ECB tapering.

Market’s first reaction was that ECB has turned hawkish.  Yields flew in Europe and euro went over $1.08.  On second thought, euro and yields are pulling back.

Super Mario Kills Budding Gold Rally

Gold had finally turned into a rally mode as the selling pressures from the momo crowd lifted.  Had Draghi not tapered, gold rally would have continued to $1200.  The news of tapper has killed the gold rally as of this writing.

Silver

Silver is out performing gold.  There is big speculation building that Indians will by more silver now that gold is coming under government scrutiny.

In our analysis, such reasoning is totally misplaced but it is not going to stop less knowledgeable investors from pushing silver up in the short-term.

Natural Gas

Natural gas inventories will be reported at 10:30 am ET and have a potential to cause a major move in natural gas.

Jobless Claims

Weekly Jobless Claims are a leading indicator and carry heavy weight in our models. Jobless Claims came at 258K vs. 260K consensus.

China Lift May Cause Trump Ire

Overnight China reported that exports rose +0.1% vs. -5.0% consensus.  This is a strong number and may draw ire of Trump.

Markets

Our very, very short-term early stock market indicator is neutral but expect the market to initially push up.

Interest rates and bonds are range bound.

Gold futures are at $1176, silver futures are at $17.16, and oil futures are $50.11.

S&P 500 resistance levels are 2250, 2288 and 2300; support levels are 2222, 2100, and 2180.

DJIA futures are up 45  points.

OPEC MIRAGE, SMART TRUMP MOVE, ECB MEETING AND KOREAN SCANDAL

This is what you need to know today.

OPEC Mirage

It turns out that only half of non-OPEC cut announced in the OPEC deal is real.  The rest of the announced cut is the natural decline in production that would have occurred anyway without any deal.   Oil is falling as the smart money catches on to this analysis.

Gold

There is still no selling by smart money. Momo crowd selling has temporarily dried up.

Physical demand from India continues to decline.

Natural Gas

Natural gas continues to spike up mostly on momentum.   There will be a separate post on ZYX Buy on the existing natural gas position.

Smart Trump Move

There is a credible report that the governor of Iowa, Terry Branstad, has accepted a Trump offer to become the next Ambassador to China.  This is a smart move on the part of Trump.

Chinese President Xi Jinping was stationed in Iowa when he was a young man and has been a long-time friend of Branstad.

ECB Meeting

The consensus is that European Central Bank (ECB) will announce tomorrow the extension of its bond buying program beyond March after its current meeting.

Korean Scandal

Korean President Park is headed for an impeachment hearing on Friday related to a corruption scandal.

If Korean market falls, it will be a buying opportunity.  The signal will be published in ZYX Emerging.

Markets

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

Currencies, interest rates and bonds are range bound.

Gold futures are at $1174, silver futures are at $16.88, and oil futures are $50.32.

S&P 500 resistance levels are 2222, 2250 and 2288; support levels are 2200, 2180, and 2165.

DJIA futures are down 3  points.

NEW HIGHLY INFLATIONARY DATA POINT, SMART MONEY NOT SELLING GOLD, OIL EUPHORIA WEAKENS AND RESISTANCE TO TRUMP

This is what you need to know today.

Highly Inflationary Data Point

Unit Labor Costs for Q3 have been revised to 0.7% vs. 0.2% consensus. If this trend persists, this is a highly inflationary data point.

The insight here is that the markets are not prepared for inflation.  Our objective is  to keep a close eye on the data and position various portfolios correctly for higher inflation if data supports it before the markets.

Smart Money Not Selling Gold

During yesterday’s post Italy dip in gold, smart money was not a seller.  Smart money had stepped into gold before the referendum.

The selling came from the momo crowd.  The momo crowd was not selling because of Italy but because  they cannot take the pain of huge losses as they had bought aggressively near the highs this year.

As a friendly reminder to our subscribers, in the long-term, inflation is good for gold.

Gold Eagle

From all indications, demand for gold eagle coins is continuing to surge in December.  In November, sales reached a new record high for the year, 52% over November of 2015.

Oil Euphoria Weakens

This morning oil euphoria is weakening.  Market is realizing that reaching an agreement on paper is one thing, but implementing it is another.  Oil is seeing aggressive selling as of this writing.

Germany

German factory orders unexpectedly jumped to +4.9% vs. -0.3% consensus.  This is the fastest growth since August 2016.

India Rate Cut

Speculation is building that the Reserve Bank of India will cut its benchmark interest rate by as much as 50 basis points to conquer the effects of demonetization.

The insight here is that such a rate cut will be positive for Indian stocks.

Stunning News From Brazil

Brazil’s Supreme Court has ordered the removal of the powerful head of the Senate from his post.  This development threatens approval of spending limits.

The insight here is that it is too early to buy Brazil.

Resistance To Trump

Trump’s honeymoon is in full swing.  Trump has gained a lot of good will among blue collar workers after his success at keeping about 1000 jobs in Indiana at a Carrier plant owned by UTX.  It is becoming clear that Republican establishment is gearing up to offer stiff resistance to such tactics.

Markets

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

Currencies, bonds and interest rates are range bound.

Gold futures are at $1173, silver futures are at $16.76, and oil futures are $50.43.

S&P 500 resistance levels are 2222, 2250 and 2288; support levels are 2200, 2180, and 2165.

DJIA futures are up 9 points.

THE CHASE IS ON TO LOOK BACKWARDS AND BUY ON ITALY, WHAT IS NEXT AND THE PLAN, UPDATE ON GOLD

This is what you need to know today.

Italians overwhelmingly rejected Prime Minister Matteo Renzi’s proposed constitutional reform. Renzi is resigning.

Defeat of the reform proposal is a victory for the opposition Five Star Movement (M5S). Polls show M5S has gained popularity and is well positioned if a new election is called. The most important point for investors is that M5S wants Italy to get out of EU budget restrictions and abandon euro.

Chart Shows Reaction Of The Markets

The chart starts from the time Italy referendum results came in and compares euro futures, (euro ETF is (FXE)), gold futures (GLD), and S&P 500 futures (SPY).

Please click here for the chart.

As euro started to move up, stocks followed up. Gold started going down on stocks and euro going up.

Performance Chase

Performance chase is on. A large number of money managers are lagging their benchmarks this year. Such money managers have every incentive to buy on the slightest dip to catch up to their benchmarks before the year end.

Backward Looking

After Brexit and Trump, stocks went up and gold went down. Now investors are conditioned to do the same thing after the Italian referendum. This is backward looking. Typically money is made by looking forward and not backward. However, due to the performance chase by money managers, driving while looking in the rearview mirror instead of through the front windshield is likely to work until the year end.

The Smart Money Actions

The “smart money” had stepped into gold on Friday after the jobs report and before the referendum. So far algorithms at The Arora Report are seeing no signs of the smart money selling gold. There are also no signs of the smart money buying stocks this morning.

What Is Next

It is important to keep in mind that the first reaction is often wrong. After Brexit, the first reaction was to sell which turned out to be the wrong reaction. The same thing happened after the Trump election.

After the Trump election, the Adaptive ZYX Global Allocation Model reduced cash holdings to 15% to 25% and called for deploying the cash primarily in U. S. stocks.

After the Trump election, long gold position was sold; and large short positions in precious metals, euro and yen were maintained. The short positions were hedged on Friday with the exception of a small inverse euro position with inverse euro ETF EUO. We also provided intelligence, not an official buy signal, on gold. There are cross currents in gold, especially from India and China. If a small quantity of gold was bought on Friday, the plan is to hold it but put stops under $1143.   The plan is to maintain the hedges, at least temporarily on short precious metal, euro and yen positions.

If you bought SLV, GDX or NUGT, it is prudent to reduce position size and put close stops on the rest.

Markets

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

Oil and natural gas are moving higher.

Bonds are ticking lower and interest rates are ticking higher.

Gold futures are at $1166, silver futures are at $16.67, and oil futures are $52.13.

S&P 500 resistance levels are 2222, 2250 and 2288; support levels are 2180, 2165, and 2150.

DJIA futures are up 73 points.

WHAT TO DO NOW

Looking ahead and not only in the rear view mirror, consider continuing to hold existing core portfolio positions. Based on individual risk preference, consider 27 – 38% of assets in cash or treasury bills, and short to medium-term hedges of  25% and very short term hedges of 5%.

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