WEEKLY MARKET DIGEST: YELLEN HAWKISH CONTRARY TO POPULAR BELIEF, PERVERSE MOVE IN GOLD AND STOCKS $DIA $GLD $QQQ $SLV $SPY $TBF $TBT $USO

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   WEEKLY MARKET DIGEST: YELLEN HAWKISH CONTRARY TO POPULAR BELIEF, PERVERSE MOVE IN GOLD AND STOCKS $DIA $GLD $QQQ $SLV $SPY $TBF $TBT $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.

YELLEN HAWKISH

Please stay extra alert in case opportunities arise or actions need to be taken on existing portfolios.  We will be back to you if appropriate.

Yellen is hawkish in her speech.  She says rate hike case is strengthening.

Dollar is getting stronger.

Gold and silver initially gave up their pre-speech gains.  But in a perverse move, momo crowd is back buying extremely aggressively.  Gold has moved up $18 from its post-speech low.

In a perverse move, stocks are attempting to rally.

Interest rates and bonds are not showing much reaction.

MARKETS ANXIOUS AHEAD OF YELLEN BUT NOT THE MOMO CROWD, MORE DEFLATION IN JAPAN

This is what you need to know today.

Yellen

Yellen will start speaking at 10:00 am ET at Jackson Hole.  We have previously shared with you several probable scenarios.  Markets are anxious ahead of Yellen’s speech but not the momo crowd.

Momo Crowd Thinks They Already Know

Momo crowd thinks they already know what Yellen is going to say as is evidenced by their aggressive buying of gold and silver an hour ahead of Yellen’s speech.

GDP

Q2 GDP-Second Estimate came at 1.1% vs. 1.1% consensus.  This is a weak number.

Deflation

Consumer Price Index in Japan came at -0.4% vs. -0.4% consensus.  Deflation in Japan continues  This is likely to put more pressure on Bank of Japan Governor Kuroda and Prime Minister Abe to take more actions.

Markets

Our very, very short-term early stock market indicator is neutral.  It all depends on Yellen.

Currencies, interest rates and bonds are range bound with the exception of yen.

Yen is getting stronger.

Gold futures are at $1336, silver futures are at $18.68, and oil futures are $47.48.

S&P 500 resistance levels are 2200, 2222 and 2250; support levels are 2165, 2150, and 2132.

DJIA futures are up 4 points.

MORE SPECULATION ON YELLEN SPEECH, SOLID ECONOMIC DATA

This is what you need to know today.

Yellen Speculation

There continues to be intense speculation about what Yellen will say tomorrow.  Three thoughts are getting a lot of traction.  Keep in mind that nobody really knows what she is going to say.

  • Yellen will focus on long-term academic theories and say absolutely nothing about current interest rate policy.
  • Yellen will express hawkishness for the short-term but ultra dovishness for the long-term.
  • There is a ton of new data to be released between now and September 21st when the Fed meeting will take place.  Yellen will simply say she will wait for the data and not provide any clues.
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Market is still positioned for Yellen being ultra dovish.  However, smart money is positioned for Yellen becoming hawkish.

It is not only what Yellen says, but the market positioning is extremely important.  Expect many cross currents.

Economic Data

Weekly New Jobless Claims came at 261K vs. 265K consensus.  Durable Goods Ex-trans came at 1.5% vs. 0.4% consensus.  Durable Goods Orders were extremely strong.

Markets

Our very, very short-term early stock market indicator is neutral but expect the market to open lower.

Gold and silver fell on strong Durable Goods Orders.  But then momo crowd started buying them aggressively, smart money is absent.

Momo crowd continues to buy oil aggressively but smart money is absent.

Dollar is inching higher against yen and euro.

Interest rates and bonds are range bound

Gold futures are at $1321, silver futures are at $18.48, and oil futures are $46.62.

S&P 500 resistance levels are 2200, 2222 and 2250; support levels are 2165, 2150, and 2132.

DJIA futures are down 38 points.

UNEASY CALM AFTER 32 LOW VOLATILITY DAYS, DR. COPPER GIVES UP ALL OF 2016 GAINS

This is what you need to know today.

Uneasy Calm

S&P 500 has experienced 32 day low volatility streak of movements less than 1%.  Historically, a low volatility streak ends with a break.  Will the break be to the upside or to the downside?  It depends on what Yellen says on Friday.

Dr. Copper

Copper is known as Dr. Copper because copper price is a good harbinger of world economy.  Copper has now given up all of its 2016 gains.  Copper price has dropped to $4690 a metric ton.

As a full disclosure, ZYX Short has a short position in copper.

House Prices

House Prices FHFA Index came at 0.2% vs. 0.2% consensus.

Germany

German economy is the power house in Europe.  GDP came at 0.4% vs. 0.4% consensus.

Turkey

Istanbul 100 Index declined by as much as 2.9% after Turkey launched its first major offensive against ISIL.

As a full disclosure, ZYX Emerging has a Mild Sell rating on Turkey and some aggressive subscribers are short the market.

South Africa Arrest Rumor

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There are rumors that Pravin Gordhan, finance minister of South Africa, will be arrested.  It is confirmed that he has been contacted by South African Elite Police.  The arrest may be in connection with a rogue spy network he set up.

South African rand fell by more than 1%.

As a full disclosure, The Arora Report rating on South Africa is Neutral and is likely to be lowered to Sell if Yellen is hawkish.

Markets

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

There is an uneasy calm in all markets with the exception of gold and silver.  There is selling in both precious metals.

Gold futures are at $1333, silver futures are at $18.68, and oil futures are $47.28.

S&P 500 resistance levels are 2200, 2222 and 2250; support levels are 2165, 2150, and 2132.

DJIA futures are down 14 points.

QUIET TRADING AS POSITION SQUARING AHEAD OF JACKSON HOLE BEGINS, PLENTY OF RUMORS

This is what you need to know today.

Quiet Trading

There is not any significant economic data to report.  Instead of taking new positions or selling old positions, institutions and professionals are primarily focused on position squaring ahead of Yellen speech at Jackson Hole.

Rumors

A quiet day like today is tailor made for rumor mongers.  Expect them to try to whipsaw the market in both directions

Markets

Our very, very short-term early stock market indicator is neutral but expect the market to open higher.

Momo crowd continues to aggressively buy gold, silver and oil.

Smart money lightly sells oil on spikes but is quiet in gold and silver.

Interest rates are ticking slightly lower and bonds are ticking slightly higher.

Gold futures are at $1347, silver futures are at $18.98, and oil futures are $46.78.

S&P 500 resistance levels are 2200, 2222 and 2250; support levels are 2165, 2150, and 2132.

DJIA futures are up 59 points.

FISCHER MOVES THE MARKETS, SILVER BREAKS SUPPORT AND IRAQ TO SELL MORE OIL

This is what you need to know today.

Fischer

Stanley Fischer, vice chairman of the Fed, has come out hawkish over the weekend.  His statement is moving most of the markets across the world.

Fischer, Dudley and Yellen form the inner circle of the Fed. Dudley and Fischer have now come out hawkish ahead of Yellen’s speech at Jackson Hole on Friday.

Markets are positioned based on two assumptions.

  • Yellen will be ultra-dovish
  • Nobody other than Yellen counts.

These are dangerous assumptions.  Are Fischer and Dudley preparing the market for Yellen to be hawkish, or are they differing from Yellen?

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Under these circumstances, it is prudent not to be aggressive on the long or short side.

Silver Breaks Support

Silver has broken support at $19.  However as silver approached the previous breakout point, the momo crowd has started buying aggressively.

When gold fell to $1337, breaking support at $1340, the momo crowd again started buying aggressively.

Oil

Oil fell below $48 after almost touching $50 last week on the headlines that Iraq will sell more oil.  The market reaction is amazing in view of the fact that it was well known for a month to anybody deeply steeped in oil that Iraq was actively working on increasing oil output.

Oil is beginning to come under the control of the momo crowd just like gold and silver has previous fallen to the control of the momo crowd.

The momo crowd is not known for deep study.  They act on headlines, out of emotions and simple technicals that give them no edge in the medium to long-term.

India

India has named Urjit Patel as the new governor of the Reserve Bank of India.  Patel was educated at Yale and worked for IMF.

Patel will not have the same power as his predecessor, Rajan.  Reserve Bank of India is forming a Monetary Policy Board (MPB).  The MPB will exert a lot of power independent of the governor.

Patel has been known as inflation hawk.  Patel mostly represents continuity and a safe choice.

Markets

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

Dollar is stronger.

Interest rates and bonds are range bound.

There is a lot of selling pressure in copper.

Gold futures are at $1341, silver futures are at $18.97, and oil futures are $47.94.

S&P 500 resistance levels are 2200 2222 and 2250; support levels are 2165, 2150, and 2132.

DJIA futures are down 56 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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