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.
WAGES RISE MOST SINCE 2009, BOTH LONG AND SHORT-TERM OPPORTUNITIES AHEAD FROM THE EARNINGS SEASON
This is what you need to know today.
Wages Rise
This morning U. S. Department of Labor released December Jobs Report. The most striking is that in 2016 wages rose 2.9%, the largest increase since 2009.
Of some concern is that Non-farm Private Payrolls came at 144K vs. 170K consensus. However, November payrolls were revised upwards. As a result there is no adverse reaction in the markets.
Long And Short-term Opportunities Ahead
Earnings season will start next week. This earnings season is likely to provide many long and short-term opportunities. At The Arora Report we monitor 3000 U. S. stocks, 1000 international stocks and 300 ETFs.
We will be looking for earnings that exceed or miss the whisper numbers and where there is a significant difference between the whisper numbers and the consensus numbers. Such situations provide the highest risk adjusted returns.
Gold
There was a surge in buying after the release of the jobs report as the headline number was lower than the consensus. The thinking is that weaker jobs number means lower interest rates which market considers good for gold. However as the momo crowd was buying the ‘smart money’ sold into strength. The reason appears to be that the ‘smart money’ quickly realized that the prior month was revised upwards and took advantage of momo crowd buying on the headline. As of this writing gold has pulled back due to pressure from the ‘smart money’ selling.
Markets
Our very, very short-term early stock market indicator is neutral but expect bulls to take another shot at DJIA 20,000.
There are several cross currents in oil, bonds and currencies after the jobs report. Often the initial reaction is wrong. We will comment more later as appropriate.
Gold futures are at $1172, silver futures are at $16.40, and oil futures are $54.16.
S&P 500 resistance levels are 2288, 2300 and 2334; support levels are 2250, 2222, and 2200.
DJIA futures are up 10 points.
CHINA AND MEXICO ACT OUT OF FEAR OF TRUMP, GOLD REACTS BUT STOCKS OBLIVIOUS
This is what you need to know today.
Fear Of Trump
Renminbi, managed currency of China, has shown the biggest two day gain on record. We suspect the buyer behind the scenes is the Central Bank of China.
Central Bank of Mexico is aggressively selling dollars and buying pesos to strengthen the peso.
Trump has long accused China and Mexico of manipulating their currency to become weaker to gain trade advantage over the United States.
Ahead of Trump’s inauguration, China and Mexico are now manipulating their currencies to the upside to reduce political support in the U. S. for Trump.
Gold Reacts
There is aggressive buying in gold as gold reacts to weakening dollar.
For the first time since the election, even the ‘smart money’ is stepping in to lightly buy gold.
Fed Minutes Indicate Upside To Stocks
Just released Fed minutes indicate that the Fed believes there is an upside to fiscal policy but Fed intends to respond only with slow rate hikes. If this scenario actually turns out to be true, there is substantial upside to stocks.
Mixed Employment Data
ADP employment change came at 153K vs. 170K consensus. This shows weakness but this is a lagging indicator.
As our subscribers know, our models give heavy weight to weekly jobless claims. This is a leading indicator. Weekly jobless claims came at 235K vs. 265K consensus. This is a very strong number.
Markets
Our very, very short-term early stock market indicator is negative but bulls may take another shot at moving stocks up to DJIA 20,000.
Interest rates are drifting down and bonds are drifting up.
Dollar is weaker.
Oil is attempting a rally ahead of EIA data to be released at 11:00 am.
Gold futures are at $1177, silver futures are at $16.64, and oil futures are $53.58.
S&P 500 resistance levels are 2288, 2300 and 2334; support levels are 2250, 2222, and 2200.
DJIA futures are down 9 points.
FED ON TAP, GOLD AND STOCK CONTRADICTION, OIL FAILURE, JAPAN STRENGTH
This is what you need to know today.
Fed Minutes
FOMC minutes will be released at 2:00 pm ET. We will be looking for insights into the reasons behind increasing their projections to three rate hikes in 2017.
This is likely to be a market moving event.
Gold And Stock Contradiction
Right now gold market believes there are big risks ahead, stock market believes risks are contained and everything is rosy.
In our analysis, gold market is likely correct. However it does not mean that gold forms a good investment here.
It is important to remember that markets are like a beauty contest. Your opinion does not matter, it is the opinion of the judges that counts. Judges in this case are the collective actions of big money.
Gold is taking a technical breakout on weaker dollar.
There is aggressive buying in gold and especially in silver by the momo crowd. The ‘smart money’ is not active.
Failed Oil Rally
Yesterday morning oil rallied and briefly staged a technical breakout. When the breakout failed, shorts pushed hard on the pedal. These days in the oil market, momo crowd represents weak hands. The current rally has been primarily chased by the momo crowd. Shorts know this and thus felt comfortable taking on aggressive large positions.
After a major decline, we expect shorts to take profits by buying to cover.
Japan Jumps 2.5%
Overnight Nikkei, the main stock index in Japan, jumped 2.5%.
Recently we wrote in the Morning Capsule,
Money Flowing Into Japan
Over the last week, money is flowing into Japan. The concept is that weaker yen will increase earnings for corporate Japan. Japan is mostly an export oriented economy.
As a full disclosure, ZYX Allocation has three positions in Japan, and ZYX Buy has two positions in Japan.
The two long positions in ZYX Buy are NMR and MTU.
Markets
Our very, very short-term early stock market indicator is neutral.
Interest rates are drifting down and bonds are drifting up.
Gold futures are at $1166, silver futures are at $16.46, and oil futures are $52.38.
S&P 500 resistance levels are 2288, 2300 and 2334; support levels are 2250, 2222, and 2200.
DJIA futures are up 37 points.
CHINA CRITIC TAPPED BY TRUMP, MONEY POURS INTO STOCKS AND FLOATING RATE SENIOR BANK LOANS, OPTIMISM IN GOLD AND OIL
This is what you need to know today.
China Critic
When it comes to international trade, U. S. Trade Representative is a key position in the government. Trump has tapped harsh China critic Robert Lighthizer to be the next trade representative. The appointment signals a tougher stance than many in the establishment had expected.
The insight here is that there is a much higher risk of trade war than the stock market is indicating. A trade war will be disastrous for the stock market.
Money Pouring In
New money is pouring in to the stock market from pension funds as well as from mom and pop who are getting excited about the stock market.
Of note is that professionals are pouring money into floating rate senior bank loans. Since interest rates on bank loans float, they are the right income investment at a time when interest rates are expected to rise. The best way to invest in senior bank loans is through closed end funds. Timing is important. It is important to buy at a discount to net asset value. There are five different senior floating rate bank loan positions in ZYX Global Multi Asset Allocation including four in the 2016 Special Closed End Sub-Portfolio. Based on the purchase price they are yielding between 8% and 10.63%, in addition there are capital gains. Such funds are volatile. The next dip is likely to be a buying opportunity for those not in such funds.
Momo Crowd In Stocks
The momo crowd is aggressively buying stock futures in anticipation of pension funds and mutual funds buying later in the day.
Tax Loss Selling
We do anticipate some tax loss selling that was postponed from last year into this year. The tax loss selling may thwart the upside momentum. Those who believe the Trump rally is overdone are likely to sell right here.
Gold
In our proprietary sentiment indicators, optimism about gold has dramatically jumped over the last week. Historically such quick shift in sentiment in gold is often short lived. This morning gold dipped below $1150 and silver below $16. The momo crowd was aggressive buyer. The ‘smart money’ is inactive.
Oil And Natural Gas
The momo crowd is aggressively buying oil. Natural gas is being sold on warmer weather.
Markets
Our very, very short-term early stock market indicator is positive.
Dollar is stronger.
Bonds and interest rates are range bound.
Gold futures are at $1151, silver futures are at $16.06, and oil futures are $54.90.
S&P 500 resistance levels are 2288, 2300 and 2334; support levels are 2250, 2222, and 2200.
DJIA futures are up 125 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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