WEEKLY MARKET DIGEST: BIG EQUITY OUTFLOWS, SECOND HIGHEST DEMAND FOR GOLD AND OIL MAGNAT $DIA $QQQ $SLV $SPY $TBF $TBT $USO

WEEKLY MARKET DIGEST: BIG EQUITY OUTFLOWS, SECOND HIGHEST DEMAND FOR GOLD AND OIL MAGNAT $DIA $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.

STRONG RETAIL SALES CONTRADICT COMPANY DATA AND BIG EQUITY OUTFLOWS

This is what you need to know today.

Retail Sales Contradiction

The data released this morning shows that retail sales are strong.  Retail Sales for April came at 1.3% vs. 0.9% consensus.

Our models utilize retail sales ex-auto because auto sales are very noisy.  It is critical to filter out the noise for models to be accurate. Retail Sales ex-auto came at 0.8% vs. 0.6% consensus.

On the surface, this data contradicts dismal recent earnings reports from stalwarts like M, JWN, GPS, FOSL, and JCP. Digging below the surface shows that it is not that the consumer is weak, the sales are simply shifting on-line to the likes of AMZN.

Non-Store Retail Sales in April rose a very strong 2.1%.

Equity Outflows

So far in 2016, equity outflows from funds have hit $90 billion.  This can cut both ways.

  • Outflows tend to have a momentum bias. In simpler words, outflows can easily accelerate causing more downward pressure on the stock market.
  • The flip side is that now there is a lot of cash on the sidelines. If the market starts moving up, irrespective of the reason, some investors are going to panic on the fear of being left out and jump in at higher prices causing a melt-up.

Please scroll down to see the What To Do Now section.

Markets

Silver has broken the major support at $17.  Gold pulled back to $1265 before rebounding.  On the last pull back to $1260 level, momo crowd declared that the correction was over and started buying aggressively. We will be carefully watching to see actions of the momo crowd and Smart Money in precious metals.

Momo crowd continues to aggressively buy oil.  On up spikes, Smart Money continues to sell.  We will be carefully watching to see who wins the battle.

Euro is weaker in spite of good economic data from Europe.

Interest rates and bonds are range bound.

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

Gold futures are at $1267, silver futures are at $16.96, and oil futures are $46.16.

S&P 500 resistance levels are 2063, 2100, and 2111; support levels are 2038, 2017, and 2000.

DJIA futures are down 41 points.

HISTORIC DAY IN BRAZIL, SECOND HIGHEST DEMAND FOR GOLD, OIL MAGNAT

This is what you need to know today.

Brazil

Brazil matters because it is the largest economy in Latin America and one of the biggest producers of commodities in the world.

Today is an historic day in that senate overwhelmingly voted to start the impeachment trial of President Rousseff.  Rousseff will temporarily be stripped of power.

Brazil is likely to offer generational investment opportunities.  We will discuss this in more detail in ZYX Emerging Markets ETF Alert.

Employment

Monthly Initial Claims came at 294K vs. 270K consensus.  This is one more piece of recent data showing slight weakening of the U. S. labor market.  This is a leading indicator and carries heavy weight in our models.

Gold

In the first quarter of 2016,  gold experienced second highest demand ever.

India and China are the traditional buyers of gold. Looking below the headlines, demand in India fell by 39% to 116.5 tons and demand in China fell by 12% to 241.3 tons.

The demand mainly came from investment funds.  ETF holdings went up by 300.7 tons.

Oil

We usually focus on WTI as WTI is the benchmark for the United States.  International benchmark is Brent.  On momentum buying Brent has hit $48.  Traders are attracted to round numbers.  In this case the round number is $50 for Brent.

Oil is running up on headline bullish inventory number.  There are two problems with the rationale of the momo crowd that is aggressively buying oil here.

  • First the inventory draw is due to Canadian fire.  Canadian fire is easing and several Canadian companies are resuming production.
  • When analyzed as a whole, including gasoline and distillates, the inventory numbers are not that bullish.

Markets

Interest rates are edging slightly higher, bonds are drifting down.

Currencies are range bound.

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

Gold futures are at $1275, silver futures are at $17.32, and oil futures are $46.85.

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

DJIA futures are up 58 points.

MARKET LOWER ON BLOCKED DEALS, GOLD CORRECTION AND CANADA FIRE EASES

This is what you need to know today.

Blocked Deals

In the U. S. a judge blocked SPLS and ODP deal.  In Europe EC blocks CK Hutchison and O2 deal.

After a strong run yesterday, there is disappointment in the stock market over blocked deals.

Lower earnings from benchmark companies DIS and M are hurting positive sentiment.

Gold

The momo crowd has declared that after gold had dipped below $1260 yesterday the correction is over.

Smart Money is inactive in gold.

Canada Fire

Canada fire is easing.  Affected producers in Canada are planning to resume production.

API inventory buildup was higher than the consensus.  U. S. government data will be released at 10:30 am ET, this data is considered more authoritative.

Markets

Silver and gold are being aggressively bought by the momo crowd.

Oil is highly volatile before the release of inventory data.

Interest rated, bonds and currencies are range bound.

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

Gold futures are at $1277, silver futures are at $17.56, and oil futures are $44.26.

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

DJIA futures are down 51   points.

CHINA DATA GIVES FED ROOM, PHILIPPINES TRUMP, AND SAUDI PRODUCTION

This is what you need to know today.

China

Overnight China PPI came at -3.4% vs. -4.3% consensus.  CPI came at 2.3% vs. 2.4% consensus.

The insight here is that China’s economy is stabilizing and gives PBOC more room to ease if needed.

Fed

The Fed has been clear that one reason it has not raised rates is China.  However, the latest China data will give Fed breathing room regarding China.

Philippines Trump

Rodrigo Dutret wins Philippines presidency.  He is also known as Philippines’ Trump because of Trump like policies and behavior.

Corruption Wins

In Malaysia the ruling party has scored a landslide win.  There is considerable evidence of corruption related to IMDB, but voters did not care.

Saudi Production

All indications are that under the new oil minister, Saudi Arabia is planning to expand oil production.

Markets

Dollar yen breaks resistance at 109.  In other words, dollar is getting stronger.

Interest rates, bonds, oil, gold and silver are range bound.

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

Gold futures are at $1264, silver futures are at $17.10, and oil futures are $43.81.

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

DJIA futures are up 80 points.

OIL AND GOLD RAN UP ON SAUDI SHAKEUP ONLY TO BE SLAMMED BY SMART MONEY

This is what you need to know today.

Oil

Over the weekend, Saudi replaced Ali al-Naimi, its long time oil minister with a close ally of Deputy Crown Prince.  Momo crowd started immediately aggressively buying gold and oil on the theory that this was the cause of a new big uncertainty.

Smart Money aggressively sold both gold and oil into the strength.

Here is why the momo crowd is wrong.

  • The Crown Prince is running the policies and not the oil minister.
  • The Crown Prince has a strong track record of not lowering production.

The Crown Prince is going to try his best to defend Saudi’s oil contracts with China, Japan and India.

The focus of new Saudi policy is directed at Iran.

Iran is getting ready to increase production.  Therefore it is not likely that Saudi under the new oil minister will decrease production.

Gold

In addition to the foregoing, technical traders who bought on Friday on the momentum caused by the momo crowd are likely to sell their gold positions at a loss as based on traditional technical analysis Friday’s rally is failing and forming a very, very short-term double top.

Markets

Initially stock futures were running with oil.  However as oil pulls back stocks are likely to pull back.

Due to statements from BOJ officials, yen is weaker.

Interest rates are drifting lower causing bonds to lift up.

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

Gold futures are at $1274, silver futures are at $17.20, and oil futures are $44.32.

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

DJIA futures are up 2  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 30 – 42% of assets in cash or treasury bills, and short to medium-term hedges of 30% of non-cash positions.

 

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