WEEKLY MARKET DIGEST: EUPHORIA TO BUY EVERYTHING, TOKYO INSERTS A BIT OF SANITY AND RECORD LOW YIELDS $DIA $GLD $QQQ $SLV $SPY $TBF $TBT $USO

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WEEKLY MARKET DIGEST: EUPHORIA TO BUY EVERYTHING, TOKYO INSERTS A BIT OF SANITY AND RECORD LOW YIELDS $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.

TOKYO INJECTS ANOTHER SMALL DOSE OF SANITY INTO THE MARKETS, RECORD LOW YIELDS

This is what you need to know today.

Small Dose Of Sanity

Some smart investors in Tokyo again injected a small dose of sanity into the absurd euphoria across all markets all over the globe.  Some investors in Europe and the U. S. appear to be taking notice this morning.  Yesterday we wrote,

 So far it is akin to giving one Tylenol to a patient suffering from a high fever. Typically the fever comes right back unless more treatment is given.

Overnight smart investors in Tokyo gave the euphoria fever one more Tylenol.

It is yet to be seen if the fever gets proper treatment and breaks or it spikes again.

Record Low Yields

10-year German bund yield touched 0.42%, a record low.

Japan’s 10-year yield fell to 0.155%, a record low.

In the U. S., 10-year Treasury yield has fallen to 1.66%.

10-year Russian bond yield fell to 8.6%, the lowest level since 2014.

Oil Breaks $50

Only yesterday many oil gurus were out proclaiming that now $50 was the floor on oil prices.  As of this writing, oil has fallen to $49.78.

Cautious Stance

When markets exhibit insanity, it is important for investors to maintain a cautious stance and not get carried away by euphoria.

Often, the most important action an investor can take is to do nothing.

One of the worst mistakes investors often make is to buy into the euphoria and sell into the fear.

It is worth remembering,

Markets always make fools of the maximum number of gurus.

It is important to maintain high levels of cash, please see What To Do Now section below.

Markets

Momo crowd continues aggressive buying of gold and silver.  Smart money is inactive in gold and silver.

Smart Money is lightly selling oil and natural gas.

Interest rates are drifting down and bonds are moving up.

Currencies are volatile in a small range.

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

See also  MOMO CROWD WANTS THE FED TO BOW TO THEM, WHAT HAPPENS TO THE STOCK MARKET IF THE FED DISAPPOINTS?

Gold futures are at $1273, silver futures are at $17.31, and oil futures are $49.78.

S&P 500 resistance levels are 2120, 2132 and 2150; support levels are 2063, 2038, and 2017.

DJIA futures are down 118 points.

 

TOKYO SLIGHTLY TEMPERS THE EUPHORIA TO BUY ANYTHING AND EVERYTHING

This is what you need to know today.

Euphoria Tempered

Overnight finally some smart people in Tokyo slightly tempered the euphoria to buy anything and everything.

So far it is akin to giving one Tylenol to a patient suffering from a high fever. Typically the fever comes right back unless more treatment is given.

Absurdity Of The Euphoria

The euphoria is absurd in that people are simultaneously buying risky assets such as commodities, junk stocks, junk bonds and emerging market currencies as well as safe havens of Treasuries, yen, Swiss franc and gold.

Over the last few days, the message of the markets has been that the world will simultaneously break into huge prosperity and suffer from a huge catastrophe. 

The Last Five Times

Every single time of the last five times such euphoria has gripped the markets, it has ended badly.

No one knows with certainty what is going to happen next.  Perhaps this time it will be different.  For this reason it is important to keep an open mind, not have opinions and emotions, so that an investor can squarely look at the hard data and make objective decisions.

Oil

Inventory numbers released yesterday were bearish.  However, an attack by insurgents on a CVX terminal in Niger delta ran the prices up.  This morning the prices are coming down as the attack on the  terminal did not significantly disrupt supply.

Markets

Momo crowd continues to aggressively buy gold and silver.  Smart Money is inactive in gold and silver.

Euro and yen are meeting heavy resistance in their recent advance.

Bonds are also meeting heavy resistance.

Our very, very short-term early stock market indicator is neutral but expect the market to start with an overhang from Tokyo.

Gold futures are at $1262, silver futures are at $17.01, and oil futures are $50.51.

S&P 500 resistance levels are 2120, 2132 and 2150; support levels are 2100, 2063, and 2038.

DJIA futures are down 58 points.

 

MONEY CHASING EVERYTHING

This is what you need to know today.

There are early indications of markets entering a phase where money chases everything.   History shows that such phases end badly.  However money is to be made by being prudent and cautious.

See also  PRUDENT INVESTORS WATCHING SEMICONDUCTORS FOR A SIGN OF A PULLBACK, GOLD HITS ALL TIME HIGH

Strong buying is coming into commodities, stocks, bonds, and currencies.  Temporarily markets have suspended all laws of macroeconomics.

The World Bank lowered its 2016 global GDP growth forecast to 2.4% from 2.9%.

EIA will release its inventory data at 10:30 am ET.

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

Gold futures are at $1260, silver futures are at $17.00, and oil futures are $51.03.

S&P 500 resistance levels are 2132, 2150 and 2200; support levels are 2100, 2063, and 2038.

DJIA futures are up 25  points.

 

BULLISH TECHNICAL SETUP FOR STOCKS, YELLEN SPEECH AND POSITIVE DATA FROM EUROPE

This is what you need to know today.

Bullish Technical Setup

Based on traditional technical analysis, there is a very bullish setup for the stock market.  There are a large number of pure technical players in the market.  Buying by such players will be exaggerated by the machines and thus potentially new highs may happen.

Return Of Capital

To be successful over the long run, here is a core principle that every investor must follow,

Always give precedence to return of capital over return on capital.

Fundamentals are simply not supportive of technicals and there are several risk events ahead.  The biggest is potential Brexit.  Also if results from upcoming Spanish election are indecisive, it may have a major negative effect on Europe that will spill over to the U.S.

Yellen Speech

Yellen speech was more hawkish than the consensus.  However, the momo crowd has chosen not to believe what she said.

Markets

All markets with the exception of copper are range bound.

Copper is being hammered  on inventory concerns.

Our very, very short-term early stock market indicator is neutral but technical buying may lead to a short-term breakout here.

Gold futures are at $1241, silver futures are at $16.33, and oil futures are $50.28.

S&P 500 resistance levels are 2111, 2132 and 3150; support levels are 2100, 2063, and 2038.

DJIA futures are up 28 points.

 

YELLEN SPEECH THE NEXT MARKET MOVING EVENT AND MORE BREXIT WORRIES

This is what you need to know today.

Stocks

Here is the fundamental question that stocks face after Friday’s employment shocker, “Is the economy weakening so much that it will hurt stocks or will stocks go higher because Fed will not raise rates?”

Market consensus is that it is the latter.

Our analysis is not as conclusive, we see probabilities as 40% for the former and 60% for the latter.

See also  NVIDIA FALLS BELOW TRENDLINE, FED’S WALLER IN NO RUSH TO CUT RATES

Yellen Speech

Yellen speech is the next market moving event.  It will take place at 12:30 pm ET.  Please stay alert around this time.

The consensus is that:

  • Yellen will walk back her prior remarks  on interest rates
  • June will not be a live meeting
  • Risk is too high to raise interest rates
  • July is off the table
  • September is a possibility

If her speech is different from the consensus, expect major moves in stocks, dollar, bonds and gold.

We think there is not enough data to support the consensus.  We agree with Federal Reserve Bank of Boston President Rosengren that it is prudent to figure out if the employment report was an anomaly or a new trend towards wider slowdown in the economy.

Brexit

Brexit fears are accelerating again in response to a new survey in Britain.  Pound is falling and volatility is being bought.

Oil

Saudi lowered the prices that they charge in Europe but increased the prices that they charge in Asia.  At least temporarily, market participants  believe that Asia matters more than Europe and are running up oil.

Markets

Aggressive buying by the momo crowd continues in gold and silver,  Smart Money is inactive.

Currencies, interest rates and bonds are range bound.

Our very, very short-term early stock market indicator is neutral.  We want to make you aware that there is a technical set up here for an explosive move in stocks to the upside.

Gold futures are at $1246, silver futures are at $16.47, and oil futures are $49.65.

S&P 500 resistance levels are 2111, 2132 and 2150; support levels are 2063, 2038, and 2017.

DJIA futures are up 62 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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