THE IMPORTANCE OF POSITIONING — BUYING BEFORE THE ELECTION

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.

THE IMPORTANCE OF POSITIONING — BUYING BEFORE THE ELECTION

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

Positioning

Please click here for a chart of S&P 500 futures ().

Note the following:

  • In yesterday’s Morning Capsule and Afternoon Capsule, we explained the importance for investors to understand the positioning of Wall Street.
  • In the Afternoon Capsule we wrote:

The interpretation of the VUD indicator being solid orange is that Wall Street and institutions are reducing their position sizes on big tech ahead of the earnings. There is clearly prudence in doing so at a time when the momo crowd is fearless in buying.

  • The VUD indicator has proven spot on.
  • The momo crowd aggressively bought ETFs and futures before the tech earnings. In contrast, Wall Street and institutions reduced their positions.
  • The chart shows when big tech earnings were released.
  • Immediately after the earnings releases, the momo crowd aggressively bought and spiked up the stocks of Facebook () and Amazon ().  At the highs, smart money sold and the momo crowd was slammed.  These two stocks fell but the momo crowd kept on buying.
  • Apple () stock fell right after the earnings.  The momo crowd has continued to buy the drop.
  • Overall, earnings from Facebook, Amazon and Apple were good.  The selling is the result of positioning prior to the earnings.
  • Google () earnings were a blowout.  The earnings were exceptionally good and for this reason, nothing else mattered.
  • The chart shows steady drop in the futures.
  • The chart shows that the drop accelerated during the night.
  • The chart shows that around 3:00 am ET buying started coming in.  It appears that the buying was coming in from Europe.
  • There are always cross currents in the market.
  • Last night started pre-election buying.
  • There may be significant pre-election buying from some institutions before the election. On the surface, this seems counterintuitive to buy before the election which is a risk event.
  • The momo crowd continues to buy before the election.

Reasons For Buying Before The Election

All investors should understand why a group of investors will buy between now and Tuesday.  Here are the reasons:

  • In 2016, the stock market went up after the election.  Many investors do not realize but they invest looking in the rearview mirror.  The logic is that since the market went up last time after the election, it will do the same this time.  
  • Backtesting is widely available for free. A large number of less knowledgeable investors are enamored with backtesting without understanding its flaws.  Such investors are backtesting their strategies and buying based on the 2016 election. 
  • As we have been sharing with you, smart money sold near the top and now has cash ready to invest.
  • Technically the market is oversold.

Personal Income

We pay attention to personal income and personal spending because the U. S. economy is 70% consumer based.

What Pandemic?

Look at these very strong numbers.

Personal Income rose 0.9% vs. 0.3% consensus.

Personal Spending rose 1.4% vs. 1.0% consensus.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) in the early trade.  Smart money is 🔒.

Gold

The momo crowd is 🔒 gold in the early trade. Smart money is 🔒.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒.

For longer term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is 🔒.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking up and bonds are ticking down.

The dollar is weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1888, silver futures are at $23.78, and oil futures are $35.76.

S&P 500 futures resistance levels are 3320, 3390 and 3420: support levels are 3228, 3182 and 3155.

DJIA futures are down 228 points.

Protection Bands and 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 🔒 in cash or treasury bills or short term bond funds or allocated to short term tactical trades and short to medium-term hedges of 🔒 and short term hedges of 🔒. 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, 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.

AGGRESSIVE MOMO BUYING FAILS, GOOD ECONOMIC DATA

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

Aggressive Momo Buying

Please click here for the chart of S&P 500 futures ().

Note the following:

  • After the stock market closed, the momo crowd aggressively bought stock futures.
  • The aggressive buying is shown by the rectangle on the chart.
  • The chart shows a technical failure at 2:30 am ET. It appears selling came in from Europe.
  • The chart shows a second technical failure.
  • As of this writing, the futures have given up all of the massive gains from momo buying.
  • The chart shows that there was a knee jerk buying reaction when good economic data was released at 8:30 am ET.
  • The VUD indicator is the most sensitive measure of net supply demand in real-time.  The orange indicates net supply and the green indicates net demand.
  • Especially noteworthy on the chart are two marked areas of high magnitude in the VUD indicator indicating high demand for futures.
  • The VUD indicator remained mostly green even after the futures started falling.  This is due to the momo crowd continuing to buy.

GDP

Q3 GDP-Advance came at 33.1% vs. 30.2% consensus.  This is a strong number but investors should ignore it because the number is like looking in the rearview mirror.

Jobless Claims

Initial Jobless Claims came at 751K vs. 763K consensus.

Big Tech Earnings

After the close, there will be earnings from Amazon (), Apple (), Facebook () and Alphabet (). Earnings are expected to be strong.  It is difficult to determine Wall Street’s positioning in these stocks. The reaction to these earnings will be based on positioning and in turn, will determine the near-term course of the stock market.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade. Smart money is 🔒.

Gold

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade.  Smart money is🔒.

For longer term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is🔒.   This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are range bound.

The dollar is stronger.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1866, silver futures are at $22.97, and oil futures are $35.12.

S&P 500 futures resistance levels are 3278, 3320 and 3390: support levels are 3228, 3182 and 3155.

DJIA futures are down 19 points.

SMART MONEY SELLS THE GOOD NEWS, THE GURU DANCE ON THE VIRUS

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

Pay Attention

Please click here for a chart of Microsoft ().

Note the following:

  • The Morning Capsule is focused on the macro picture.  Typically individual stocks are not discussed unless there is a major implication for the entire market.
  • The reaction after Microsoft’s earnings has potential major implications.  The chart shows when earnings were released.
  • Earnings were strong, better than the consensus and better than the whisper numbers.
  • The chart shows an up spike on the earnings.  The up spike was caused by momo crowd buying.
  • We previously published a chart of money flows in 11 popular tech stocks.  Please click here for the money flow chart. The chart showed that momo crowd money flows were positive going into earnings but smart money flows were neutral.
  • The VUD indicator is the most sensitive measure of net supply demand in real-time.  The orange indicates net supply and the green indicates net demand.
  • The VUD indicator was positive after the earnings release.
  • The chart shows that the up spike on good earnings did not sustain itself and the stock drifted lower.
  • The chart shows the conference call.
  • The conference call was positive.  If the same conference call would have happened a couple of weeks ago, there would have likely been an up spike in the stock.
  • The chart shows that Microsoft continued to drift down after the conference call.
  • The chart shows brokers raising their targets.
  • Microsoft is the bluest of the blue chips.
  • Microsoft is the safest stock among the big five that include Apple (), Amazon (), Google () and Facebook ().
  • The momo crowd is buying Microsoft post earnings.
  • Smart money is selling Microsoft post earnings.
  • Over the last several months, the momo crowd has been significantly more aggressive than smart money.
  • In the case of Microsoft post earnings, smart money has been more aggressive than the momo crowd.
  • It is very instructive because Microsoft is a core holding in a large number of institutional portfolios.
  • After carefully studying Microsoft’s earnings and listening to the conference call, our analysis is that smart money selling has nothing to do with Microsoft itself but has to do with the overall macro picture.
  • When the reaction to news is different from the expectations, it is an important clue.

The Guru Dance

Many of the gurus who on market up days have been making bullish pronouncements and saying that the virus did not matter are now coming out of the woodwork to make bearish pronouncements and are saying that the virus matters. The guru dance continues.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade. Smart money is 🔒 stocks.

Gold

Gold is priced in dollars.  The dollar is stronger on virus concerns.  This is hurting gold.

The momo crowd is 🔒gold in the early trade.  Smart money is 🔒.

For longer term, please see gold and silver ratings.

Oil

API reported a build of 4.577M barrels vs. a consensus of a build of 1.11M barrels.

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒.

For longer term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is🔒.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down and bonds are ticking up.

The dollar is stronger.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1880, silver futures are at $23.54, and oil futures are $37.72.

S&P 500 futures resistance levels are 3390, 3420 and 3460: support levels are 3278, 3228 and 3182.

DJIA futures are down 611 points.

SENATE LEAVES TOWN WITHOUT STIMULUS, MOMO FINDS ANOTHER REASON TO BUY STOCKS

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

Senate Leaves Town

Please click here for a chart of S&P 500 ETF () which represents stock market benchmark index ().

Note the following:

  • The Senate has left town.  This means there is no hope for the stimulus bill to pass before the election.
  • The momo crowd was buying stocks, in part, hoping for a stimulus bill before the election.
  • Instead of selling, the momo crowd is buying stocks again this morning. This time it is a bet on a Biden victory.
  • As we have previously written, Wall Street had anointed Clinton as the next president before the 2016 election. The Arora Report was one of the very few to correctly call the Trump election.
  • Based on the data we are looking at, after last week’s tightening of the race by Trump, this week new data is favoring Biden. However, the race is too close at this time.
  • It is no secret that Biden will borrow significantly more than Trump, especially if there is a Democrat sweep.
  • More borrowing is the reason that the momo crowd is now favoring Biden.
  • The chart shows that after dipping below the breakout line, the market will open above the breakout line.
  • From a technical perspective, nothing has changed. The battle between bulls and bears continues around the breakout line shown on the chart.

Durable Goods

Durable Goods Ex-transports came at 0.8% vs. 0.4% consensus.  We leave out transports because they are highly volatile and hinder projections.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade. Smart money is 🔒.

Gold

The momo crowd is 🔒in gold in the early trade. Smart money is 🔒.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is 🔒 oil in the early trade. Smart money is 🔒.

For longer term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is 🔒.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down and bonds are ticking up.

The dollar is weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1906, silver futures are at $24.42, and oil futures are $38.73.

S&P 500 futures resistance levels are 3420, 3460 and 3520: support levels are 3390, 3320 and 3278.

DJIA futures are down 3 points.

VIRUS CONCERNS, MAJOR IMPLICATIONS OF THE EARNINGS MISS BY THE THIRD LARGEST SOFTWARE COMPANY

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

Major Implications

Please click here for a chart of  ().

Note the following:

  • Normally we do not discuss individual companies in the Morning Capsule as the Morning Capsule is dedicated to the macro picture.
  • We are highlighting  in the Morning Capsule because it has major implications for the stock market even though the momo crowd that controls the stock market is oblivious, in part, because they have never heard of .
  • SAP is the largest European software company by revenue.
  • SAP is the third-largest software company by revenue in the world.
  • ERP software from SAP runs some of the largest companies in the world. SAP has 440,000 customers across the globe.
  • SAP is also a cloud company with 200 million users.
  • The momo crowd has assumed that the software stocks will go to the moon.  Software stocks have been a driving force behind the stock market rally.
  • SAP reported revenues about 5% below the consensus and operating profits by about 2% below the consensus.
  • SAP says that there is a strong interest in digital transformation but the demand is tepid.   SAP sees muted demand to last through the first half of 2021.  In plain English, customers are interested in software but large deals are not closing due to coronavirus issues.
  • The chart shows about 21% drop in the stock of SAP.
  • SAP is not a momo stock and has yet experienced a 21% stock drop in Germany. We will have to see how it behaves after the U. S. market opens.  Chances are that the momo crowd in the U. S. will buy the dip without understanding what they are doing.  In Europe, the momo crowd is not as aggressive as they are in the U. S.
  • Investors should think about what can happen to momo stocks if they miss earnings.  We have previously highlighted .  The momo crowd has been buying the crash in  stock aggressively but the stock still continues to move lower.

Virus Concerns

So far the momo crowd has ignored the virus.  Smart money has been very concerned about the virus.  This morning, based on the weekend data, there is increasing concern about the virus.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade. Smart money is 🔒.

Gold

The momo crowd is 🔒 in gold. Smart money is 🔒.

For longer term, please see gold and silver ratings.

Oil

Coronavirus concerns are hitting oil hard.

The momo crowd is 🔒 oil in the early trade.  Smart money is 🔒.

For longer term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is 🔒.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down and bonds are ticking up on virus concerns.

The dollar is stronger on virus concerns.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1904. silver futures are at $24.34, and oil futures are $38.82.

S&P 500 futures resistance levels are 3420, 3460 and 3520: support levels are 3390, 3320 and 3278.

DJIA futures are down 305 points.

 

 

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