WEEKLY MARKET DIGEST: FEAR INDEX FUTURES SLAUGHTERED — SIGN OF A MOON SHOT OVER COMPLACENCY $DIA $GLD $QQQ $SLV $SPY $TBF $TBT $USO

WEEKLY MARKET DIGEST: FEAR INDEX FUTURES SLAUGHTERED — SIGN OF A MOON SHOT OVER COMPLACENCY $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.

N. KOREAN THREAT TO TEST A HYDROGEN BOMB IN THE PACIFIC OVERSHADOWS EVERYTHING ELSE

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

This morning, North Korean threat to test a large hydrogen bomb in the Pacific Ocean is overshadowing everything else in the markets.

In early trading, the ‘smart money’ is buying Japanese yen and gold.

In early trading the smart money is only lightly selling stocks but the momo crowd is aggressively selling stocks.

Technical Patterns

None of note.

This is powerful information and many investors use this to enter trades in addition to our official signals.  Here are the three most common uses: 1) Short-term trades in ETFs  2) Decisions to trim or add to long-term positions, and 3) New option trades. These should be used judiciously only in conjunction with macro, fundamental and quantitative indicators.  To learn more please click here.

Markets

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

Gold futures are at $1298, silver futures are at $16.96, and oil futures are $45.00.

S&P 500 resistance levels are 2500, 2550 and 2615; support levels are 2450, 2425, and 2400.

DJIA futures are down 35  points.

CHINA CREDIT RATING CUT, DOVISH BANK OF JAPAN, GOLD STOPS HUNTED, KOREAN EXPORTS RISE

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

China Credit Rating Cut

S&P has cut China’s credit rating for the first time since 1999 from AA- to A+.  The reason behind the cut is high credit growth and high asset prices.

Bank Of Japan

Bank of Japan statement is dovish. This is in contrast to the Fed’s hawkish statement.

Gold Stops Hunted

In yesterday’s Morning Capsule we wrote,

 A slightly dovish Fed may cause gold to run up.  On the other hand, a slightly hawkish Fed may cause gold to fall under $1300.  There are lots of stops right under $1300 that may be taken out.

Yesterday afternoon ahead of gold’s fall below $1300, we wrote,

On balance this is negative for gold and bonds, neutral for stocks and positive for the dollar.

The calls have proven spot on.  Gold is below $1300 and stops are being hunted.

South Korean Exports Rise

South Korean exports rise to a six year high.  We pay special attention to South Korean exports because they are very sensitive to global trade which reflects the state of  the global economy.

Technical Patterns

Biotechs are tracing a Flag.  This is bullish.  ETF of interest is .

This is powerful information and many investors use this to enter trades in addition to our official signals.  Here are the three most common uses: 1) Short-term trades in ETFs  2) Decisions to trim or add to long-term positions, and 3) New option trades. These should be used judiciously only in conjunction with macro, fundamental and quantitative indicators.  To learn more please click here.

Markets

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

Gold futures are at $1293, silver futures are at $16.92, and oil futures are $50.38.

S&P 500 resistance levels are 2550 and 2615; support levels are 2500, 2450, and 2425.

DJIA futures are down 16 points.

MARKETS AWAIT THE FED DECISION

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

The Fed Day

Markets are awaiting the Fed decision this afternoon.  It is expected that the Fed will leave interest rates unchanged.

We will be carefully scrutinizing details of QE unwind. We will also be reading the tea leaves to determine the probability of a rate hike in December.

Gold

Gold is supported by Trump’s threat against North Korea.  However expect gold to be very volatile around the Fed decision.  A slightly dovish Fed may cause gold to run up.  On the other hand, a slightly hawkish Fed may cause gold to fall under $1300.  There are lots of stops right under $1300 that may be taken out.

Technical Patterns

None of note.

This is powerful information and many investors use this to enter trades in addition to our official signals.  Here are the three most common uses: 1) Short-term trades in ETFs  2) Decisions to trim or add to long-term positions, and 3) New option trades. These should be used judiciously only in conjunction with macro, fundamental and quantitative indicators.  To learn more please click here.

Markets

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

Currencies, interest rates, bonds and oil are range bound.

Gold futures are at $1315, silver futures are at $17.33, and oil futures are $50.45.

S&P 500 resistance levels are  2550 and 2615 ; support levels are 2450, 2425, and 2400.

DJIA futures are down 5  points.

FEAR INDEX FUTURES SLAUGHTERED — SIGN OF A MOON SHOT OVER COMPLACENCY; FUND FLOWS

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

Fear Index Futures Slaughtered

Wall Street fear index is VIX.  VIX is calculated on volatility of S&P 500.  VIX goes up when fear is high and goes down when fear is low.  In practical terms, VIX spikes up when market is falling.

VIX by itself cannot be traded but there are VIX futures.  Yesterday in an unusual move, VIX futures were slaughtered by about 4% while VIX index itself only nudged a little.

Moon Shot At Complacency

The history tells us that what happened to VIX futures is often a predictor of two alternate scenarios.

  • This kind of occurrence sometimes precedes a new strong leg up.  In this case, there is the potential of a strong leg up from S&P 500 currently trading at 2504 to about 2800 over the next six months.
  • This occurrence is also often a predictor of complacency. In plain English, Wall Street thinks that nothing can go wrong.  Some of the bigger corrections and bear markets have started from this kind of complacency.

Which Scenario Is True

There is no scientific way to tell.  We can have opinions but opinions are a-dime-a-dozen.  The only realistic thing to do is to be alert, be prepared for either scenario, and have portfolios positioned in accordance with ‘What To Do Now’ section below.

Fund Flows

Funds are flowing into Japan and emerging markets.

Gold

If VIX does not go higher, there is a strong probability of gold getting hit.  On the other hand, when one looks at gold in isolation and not from an intermarket perspective, gold is getting ready to take another leg up.

From a practical point of view, the only thing we can do at this time is to have allocation to gold in accordance with prior posts.  It is important to be alert for a move in either direction.

Oil

Oil continues its rally, there is potential for a major short squeeze to the upside.

Technical Patterns

None of note.

This is powerful information and many investors use this to enter trades in addition to our official signals.  Here are the three most common uses: 1) Short-term trades in ETFs  2) Decisions to trim or add to long-term positions, and 3) New option trades. These should be used judiciously only in conjunction with macro, fundamental and quantitative indicators.  To learn more please click here.

Markets

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

Bonds, currencies and interest rates are range bound.

Gold futures are at $1312, silver futures are at $17.21, and oil futures are $50.04.

S&P 500 resistance levels are 2500 and 2550; support levels are 2450, 2425, and 2400.

DJIA futures are up 9 points.

RISK ON IN VOGUE, AGGRESSIVE SELLING IN SAFE HAVENS

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

Risk On In Vogue

Risk on is in vogue.  Popular stocks are being aggressively bought this morning in the pre-market.

Reversal

The insight here is that ‘risk on’ is the result of momentum from last week.  However, momentum from last week was in part due to quad witching.  Historically gains from quad witching often reverse in the following week.

The Fed

Market is assuming that the Fed statement after the FOMC meeting this week on Wednesday will be extremely dovish.

Selling In Safe Havens

Safe havens of gold, silver, bonds and yen  are being sold aggressively.

Oil And Natural Gas

Oil is comfortably trading above $50 on continued momentum from last week.

Natural gas is in rally mode based on weather forecasts.

Technical Patterns

None of note.

This is powerful information and many investors use this to enter trades in addition to our official signals.  Here are the three most common uses: 1) Short-term trades in ETFs  2) Decisions to trim or add to long-term positions, and 3) New option trades. These should be used judiciously only in conjunction with macro, fundamental and quantitative indicators.  To learn more please click here.

Markets

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

Gold futures are at $1315, silver futures are at $17.37, and oil futures are $50.23.

S&P 500 resistance levels are 2500 and 2550; support levels are 2450, 2425, and 2400.

DJIA futures are up 51 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 holding cash or treasury bills 19% – 29% and short to medium-term hedges of  15% – 25% and very short term hedges of 15%.

 

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