WEEKLY MARKET DIGEST: COMMERCE DEPT & CHINA SPOIL 1999-LIKE PARTY $DIA $GLD $QQQ $SLV $SPY $TBF $TBT $USO $JCP $JWN $KSS $M $RRGB $CMG $WEN $MCD

   WEEKLY MARKET DIGEST: COMMERCE DEPT & CHINA SPOIL 1999-LIKE PARTY $DIA $GLD $QQQ $SLV $SPY $TBF $TBT $USO $JCP $JWN $KSS $M $RRGB $CMG $WEN $MCD

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 COMMERCE DEPARTMENT AND CHINA SPOIL THE 1999 PARTY

This is what you need to know today.

1999 Party

Yesterday there was a trifecta of S&P 500, DJIA, and NASDAQ all reaching record highs.  This is the first time that all three major indices have reached new highs on the same day since 1999.

The recent market rally has a lot of similarities to 1999 rally.  Back then the rally continued into 2000 and then the market crashed.  A similar pattern would not be a surprise this time. For this reason, please pay attention to the ‘What To Do Now’ section below.

Department Of Commerce

At 8:30 am ET the Department of Commerce released Retail Sales number for July.  July Retail Sales came at 0.0% vs. 0.4%.  This indicates that American consumer unexpectedly withdrew spending.

The number we use in our models is Retail Sales Ex-auto.  This number came at -0.3% vs. +0.2% consensus.  The reason we take autos out in our model is because autos are extremely volatile and often mask the true underlying trend of the economy.

On the surface, this number flies in the face of much better than expected earnings yesterday and today from M, KSS, JWN, and JCP.  Gurus are already out proclaiming that Department of Commerce got something wrong.  Do yourself a favor, do not listen to these gurus with superficial knowledge and media that reacts to headlines without fully understanding them.

Here is the reality.  All of the good earnings are from department stores.  Digging into the data released by Department of Commerce, the weakness is in food and drugs.  This is consistent with weak earnings from the likes of MCD, WEN, CMG, and RRGB.

China Stumbles

Overnight a large amount of economic data was released from China.  All of the data was weaker than the consensus numbers.  The most important number is new credit, it expanded at 487.9 billion yuan compared to consensus of 1 trillion yuan.

Also retail sales and factory output data missed the forecast.

Saudi Rallies Oil

A statement from Saudi Arabia expressing willingness to do something next month to stem oil price decline has rallied oil.

Treacherous Gold

Yesterday morning we shared with you that the momo crowd was buying gold aggressively.  The momo crowd ran it up from $1346 to $1363.  Then Smart Money stepped in on good consumer sector earnings and slammed gold hard causing gold to fall to $1342.  This morning’s weak retail sales data triggered aggressive buying in gold by Smart Money, running it all the way to $1361.

Interestingly, today when there is hard data to buy gold after a long time, momo crowd is mostly inactive.  This behavior is consistent with momo crowd acting out of emotion and doomsday gurus instead of acting on hard data.  This is what makes gold so treacherous these days.

Inflation

Core PPI came at -0.3% vs. +0.2% consensus.  Core PPI has a heavy weight in our models because it is a leading indicator of inflation.

The insight here is that data shows creeping deflation.

Markets

Our very, very short-term early stock market indicator is neutral but expect the market to start slightly weaker.

Interest rates and dollar are falling on weak retail sales, bonds are rising.

Gold futures are at $1361, silver futures are at $20.20, and oil futures are $43.66.

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

DJIA futures are down 20 points.

FLAT JOBLESS CLAIMS, GOOD RETAIL EARNINGS AND IEA CONTRADICTS EIA

This is what you need to know today.

Jobless Claims

Weekly Initial Jobless Claims came at 266K vs. 266K consensus. This is a leading indicator and carries a heavy weight in our models.

Retail Earnings

Previously we had shared with you that a heavy dose of consumer sector earnings were ahead.  Macy’s (M) and Kohl’s (KSS) have reported better than expected earnings this morning.  The consumer is still shopping.

IEA Contradicts EIA

IEA stands for International Energy Agency.  It was founded in 1974 to help nations coordinate a collective response to Arab oil embargo.  29 countries including the United States are members of this organization.  IEA is out with a report saying that oil glut has disappeared.  In some ways it contradicts the EIA report.

Markets

Our very, very short-term early stock market indicator is neutral but expect the market to start out positive due to good earnings.

There is aggressive buying in gold, silver and oil by the momo crowd.

Currencies, interest rates and bonds are range bound.

Gold futures are at $1351, silver futures are at $20.12, and oil futures are $41.56.

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

DJIA futures are up 61 points.

CONSUMER SECTOR EARNINGS AHEAD, DOLLAR RALLY ERASED, EIA PUTS COLD WATER ON OIL BULLS

This is what you need to know today.

Consumer Sector Earnings

Several important consumer sector earnings are ahead. These earnings may make or break the current stock market rally.

Dollar Rally Erased

Dollar rally after the strong employment report on Friday is now completely erased.  This is causing gold and silver to jump.

Gilts Rally

U. K. debt is moving up as Bank of England was not able to find enough bonds to buy.

EIA On Oil

A new report from EIA is very bearish on oil.  Oil dipped on the report but is moving up again as dollar weakens.

Markets

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

Gold, silver, yen, euro, and bonds are getting stronger on weaker dollar.

Gold futures are at $1362, silver futures are at $20.42, and oil futures are $42.89.

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

DJIA futures are up 17 points.

THE LIFE BLOOD OF ECONOMIC GROWTH FALLS

This is what you need to know today.

Productivity

Increase in productivity is the life blood of economic growth.  Q2 Productivity-Prelim came at -0.5% vs. +0.5% consensus.

It appears that companies are running into a brick wall in attempts to increase productivity and now need to hire more people.

As competition for qualified employees intensifies, labor costs are rising.  Q2 Unit Labor costs came at +2.0% vs. +1.7% consensus.

These two trends, if they continue, will have major impact on our portfolios.  For this reason we will be watching them carefully.

India

India left its benchmark interest rate at 6.5%.  This was the last Reserve Bank of India meeting under Governor Rajan.  Rajan is known as inflation fighter but ran into disfavor with Prime Minister Modi and his term was not renewed.  India still has one of the highest interest rates among major economies.

Markets

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

Oil, silver, gold, bonds and currencies are range bound in quiet trading.

Gold futures are at $1338, silver futures are at $19.65, and oil futures are $42.93.

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

DJIA futures are up 20 points.

CURRENCY HEDGED U. S. TREASURY YIELDS NOW NEGATIVE, TRUMP PROPOSES MORATORIUM ON NEW FINANCIAL REGULATIONS AND OPEC MEETING

This is what you need to know today. 

Negative Yields

In the U. S., bonds have held up in spite of good economic data.  The main reason is that money has been flowing in from Japan and Europe. Japanese and European investors could get better yields in the U. S. even after the cost of hedging the currencies.

This morning, after currency hedging, the yield on 10-year Treasuries has fallen to a negative level.

The insight here is that the inflows from Japan and Europe into U. S. Treasuries may slow.

Trump Proposal

In an attempt to reboot his campaign, Trump will disclose his  revised economic plan in a speech at Detroit Economic Club at noon today.  Trump is proposing a moratorium on new financial regulations.   This will be good for big banks.

OPEC

OPEC will hold an informal meeting next month to discuss oil falling into bear market again.

The insight here is that rumors of what may come out of the meeting may support oil prices.

Markets

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

All markets are trading quietly in a narrow range.

Gold futures are at $1340, silver futures are at $19.81, and oil futures are $42.45.

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

DJIA futures are up 22 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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