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.
REAL REASON BEHIND BIG SWINGS IN STOCKS AND GOLD, OIL UP ON BEARISH NEWS, QUADRUPLE WITCHING, KEEP POWDER DRY
This is what you need to know today.
The Real Reason
Stocks rallied 283 DJIA points and gold fell $40 from one extreme to another on the news that the British member of parliament was brutally murdered. As heartless as it sounds, market participants rapidly calculated that the murder will help the ‘remain’ camp in the Brexit debate. As Brexit fears abated, stocks rose and gold fell.
Quadruple Witching
Today is quadruple witching when index futures, index options, stock options, and single stock futures expire. Some of the volatility of the last two days can be attributed to quadruple witching.
Oil Up On Bearish News
Russia is a major oil producer. Russian Energy Minister is out saying that he expects oil prices to stay low for 10 to 15 years. Oil has rallied strongly on the bearish news.
To the uninitiated, it may not make any sense that oil is rallying on bearish news. However, to those deeply steeped in the markets, this was a high probability scenario. Oil market was very oversold in the very, very short-term when the news came. Selling on the news was less than what smart traders would have expected. This caused shorts to cover. Short covering caused a slight move up. As green candles formed on the chart, momo crowd started buying aggressively running oil up.
Keep Powder Dry
The most important service that we can do for our subscribers is to repeat to keep the powder dry going into Brexit vote on June 23rd. High cash levels not only protect but also allow investors to participate in new opportunities as they develop. Please see What To Do Now section below.
There is confirmation from algorithms at The Arora Report that show Smart Money is getting into a highly defensive mode going into Brexit.
Markets
Japanese Finance Minister is out threatening intervention to stop yen’s rise. Yen moved up on the bearish news, the logic is similar to the logic explained about oil above.
Interest rates and bonds are range bound.
Our very, very short-term early stock market indicator is neutral.
Gold futures are at $1291, silver futures are at $17.44, and oil futures are $47.29.
S&P 500 resistance levels are 2100, 2120 and 2132; support levels are 2063, 2038, and 2017.
DJIA futures are down 9 points.
BREXIT WILL CREATE MAJOR OPPORTUNITIES, BUT FIRST RAISE MORE CASH ON BOJ HOLDING FIRE
This is what you need to know today.
Major Opportunities
Irrespective of which way Brexit vote goes, it will create major opportunities. We are preparing various scenarios in advance so that we can help you act when opportunities arise.
It is an important reminder that cash not only protects during the likely volatility over the next week, but it is also essential to capture future opportunities.
BOJ Holds Fire
As we told you yesterday, BOJ action was much more important than the Fed. BOJ held its fire due to Brexit worries. In response yen is surging to a two-year high.
This is necessitating raising more cash. Please see ‘What To Do Now’ section.
Gold
We have numerous times explained the correlation between gold and yen. Gold is following yen higher.
Markets
Attempts to rally oil continues to fail.
Interest rates continue to fall pushing rates higher.
Currencies are all over the place.
Our very, very short-term early stock market indicator is negative.
Gold futures are at $1313, silver futures are at $17.76, and oil futures are $47.17.
S&P 500 resistance levels are 2063, 2100, and 2120; support levels are 2038, 2017, and 2000.
DJIA futures are down 86 points.
SHIFT FROM BREXIT TO FED AND BOJ, GOOD INFLATION DATA AND CAPACITY UTILIZATION FALLS TO 2010 LEVEL
This is what you need to know today.
The Shift
At least temporarily, market’s focus is shifting from Brexit to Fed and BOJ.
Fed will announce its policy statement at 2:00 pm ET followed by a press conference at 2:30 pm ET. No action is expected. However, language of the policy statement or Yellen’s answers to questions may be market movers. Please stay alert during this time in case there are opportunities.
BOJ meeting is significantly more important than the Fed this time. We will publish any significant development in tomorrow’s Morning Capsule.
Good Inflation Data
Producer Price Index (PPI) carries heavier weight in our models compared to CPI. The reason is that moves in Core PPI tend to lead other indicators, we always want to be ahead, not behind. Core PPI came at 0.3% vs. 0.1% consensus.
This is positive data point due to prevailing concerns about deflation.
Capacity Utilization
Capacity Utilization fell to 74.9% vs. 75.2% consensus. This fall puts capacity utilization at the level last seen in 2010. This is a negative data point.
Oil
Oil fell as API data showed inventories much higher than the consensus. Momo crowd that was aggressively buying oil over $51 is now selling in $47 range. Smart Money is inactive.
Markets
Gold, silver, currencies, and bonds are range bound.
Copper is staging a major rally.
Our very, very short-term early stock market indicator is neutral but expect the market to start out positive.
Gold futures are at $1284, silver futures are at $17.45, and oil futures are $47.63.
S&P 500 resistance levels are 2100, 2120 and 2132; support levels are 2038, 2017, and 2000.
DJIA futures are up 43 points.
FROM EUPHORIA TO GLOOM IN THREE DAYS
This is what you need to know today.
Euphoria To Gloom
Markets have gone from euphoria to gloom in three days. Nothing fundamental has changed, it is just a swing in the sentiment.
All those pure technical investors and the momo crowd that was buying last week are now panicking and selling at lower prices than they bought last week.
German Bund
Money is rushing into the safety of German bunds, all the demand has driven yield below zero for the first time.
Retail Sales
Retail Sales in the United States were strong. Retail Sales came at 0.5% vs. 0.3% consensus. Retail Sales ex-Auto came at 0.4% vs. 0.4%.
Brexit
Market is becoming more awake to Brexit worries. Our subscribers may have noticed that we sold long UK positions before the current swoon. We also trimmed positions in Europe before they started falling.
Markets
Money is rushing into safe havens of gold, yen and bonds.
Rally attempts in oil are so far failing.
Our very, very short-term early stock market indicator is neutral.
Gold futures are at $1287, silver futures are at $17.38, and oil futures are $48.19.
S&P 500 resistance levels are 2100, 2120 and 2132; support levels are 2038, 2017, and 2000.
DJIA futures are down 52 points.
MARKET ANXIETY ABOUT BREXIT; FED, BOJ, BOE, AND SNB MEETINGS AHEAD
This is what you need to know today.
Brexit
After ignoring for months the potential of Brexit, market is beginning to become anxious about it. There is also a shift in the data from polls and British bookies in favor of exit.
British pound has been crushed. Safe haven assets like bonds, yen and gold are flying.
Central Banks
This week there are meetings of the Fed, Bank of Japan, Bank of England and Swish National Bank.
No major announcement is expected. However there is anxiety in the market about the statements that may come out of these banks.
Markets
Bonds, gold and yen are jumping on Brexit worries.
Oil is now trading below $49. Both momo crowd and Smart Money are inactive.
Our very, very short-term early stock market indicator is negative.
Gold futures are at $1288, silver futures are at $17.40, and oil futures are $48.29.
S&P 500 resistance levels are 2100, 2111 and 2132; support levels are 2063, 2038, and 2017.
DJIA futures are down 74 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 33 – 45% of assets in cash or treasury bills, and short to medium-term hedges of 30% of non-cash positions.
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