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.
GROWTH STOCK UPTREND INTACT, REBOUND IN EUROPE LOSING STEAM
To gain an edge, this is what you need to know today.
Growth Stock Uptrend Intact
Recently there have been many proclamations about the shift from growth to value. Let’s explore with the help of a chart.
The Chart
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- QQQ represents growth stocks.
- The chart shows the trendline that has been in place since April.
- The chart shows that the trendline is still intact.
- For those concerned about the shift from growth to value, the definitive answer will lie in the break of the trendline shown on the chart.
- The chart shows that RSI never got oversold. This means that the momentum is still intact.
Eurozone
The economic recovery in Europe appears to be losing steam. Eurozone August flash Purchasing Managers Index (PMI) came at 51.7 vs. expectation of 52.9. In July it was at 54.9.
A rating above 50 is considered economic expansion, however the data is disappointing.
In our analysis, as we have written before, the good economic data that we have been getting may have been due to pent up demand. What happens when the pent up demand is satisfied?
Apple And Tesla
Since the announcements for splits, Apple (AAPL) and Tesla (TSLA) have been powering the market ahead. AAPL has reached $2T valuation mark not on any change in fundamentals but based on a split. TSLA stock price has moved to over $2000.
A stock split adds no economic value. The last time this kind of behavior was seen was in late 1990’s. In 2000 the market crashed.
Momo Crowd And Smart Money In Stocks
The momo crowd is buying stocks in the early trade. Smart money is lightly selling.
Gold
The momo crowd is acting like a yo-yo in the early trade. Smart money is inactive.
The momo crowd is selling silver and miners in the early trade. Smart money is inactive in silver and miners.
For longer term, please see gold and silver ratings.
Oil
The momo crowd is selling oil in the early trade. Smart money is inactive.
For longer term, please see oil ratings.
Markets
Our very, very short-term early stock market indicator is negative but expect the momo crowd to try to push it higher. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.
Interest rates are ticking down and bonds are ticking up.
The dollar is stronger.
Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.
Gold futures are at $1944, silver futures are at $26.64, and oil futures are $41.94.
S&P 500 futures resistance levels are 3390, 3420 and 3460: support levels are 3320, 3278 and 3228.
DJIA futures are down 24 points.
A DICHOTOMY OF DR. COPPER BREAKING OUT AND JOBLESS CLAIMS RISING OVER ONE MILLION
To gain an edge, this is what you need to know today.
Dr. Copper
Please click here for a chart of copper ETF CPER.
Note the following:
- The chart shows that copper is breaking out.
- The chart shows that copper prices have been able to hang for a period of time above where they were at the February stock market high.
- There is a good reason why copper is called Dr. Copper. Copper has a reputation of giving good signals for the economy. Copper is widely used from building homes to electronics to power transmission. Demand for copper is a leading indicator.
- As a note of caution, copper is a global commodity. Its moves are based on what is going on across the globe and not just in the United States. China is an important factor in demand for copper.
- You already know that the stock market has risen because of the five big tech stocks and the momo crowd. It is important to look beyond the momo crowd and big tech stocks. Investors may want to consider keeping an eye on copper.
Jobless Claims
Initial Jobless Claims came at 1.106M vs. 990K consensus. This is a leading indicator and bearish for the economy. Of course the momo crowd would argue that more people being laid off is good for the stock market because it means more borrowing and more money printing. This ugly number may be an incentive for Democrats and Republicans to come together to borrow more for the next stimulus package. Lets hope that the next stimulus package is exclusively directed at those who truly need help. The past programs from the government and the Fed have provided some help to those who need it but for the most part have made the rich richer and not provided enough help for those who need it.
Momo Crowd And Smart Money In Stocks
The momo crowd is buying stocks in the early trade. Smart money is selling stocks.
Gold
The momo crowd is acting like a yo-yo in gold, silver and miners in the early trade. Smart money is inactive.
For longer term, please see gold and silver ratings.
Oil
The momo crowd is buying oil in the early trade. Smart money is inactive.
For longer term, please see oil ratings.
Markets
Our very, very short-term early stock market indicator is negative but expect the momo crowd to try to push the market to new highs. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.
Interest rates are ticking down and bonds are ticking up.
The dollar is stronger.
Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.
Gold futures are at $1939, silver futures are at $27.18, and oil futures are $42.74.
S&P 500 futures resistance levels are 3390, 3420 and 3460: support levels are 3320, 3278 and 3228.
DJIA futures are down 109 points.
A NEW HIGH BUT SO FAR NOTHING TO WRITE HOME ABOUT
To gain an edge, this is what you need to know today.
New High
S&P 500 made a new high but so far there is nothing to write home about. Let’s explore with the help of a chart.
Please click here for a chart of S&P 500 ETF (SPY).
- This is the shortest bear market in history.
- The chart shows that the new high is only nominal. It is barely visible on the chart.
- RSI shows that the stock market has lost momentum in the process of making this nominal new high. RSI measures the internal momentum.
- The volume is low. This indicates lack of conviction.
- This is a dismal way to make a new high in spite of aggressive buying by the momo crowd.
- In a normal market, we would be issuing a sell signal based on this behavior. However this market is not a normal market. It is an artificial market driven by excessive money printing and borrowing. Both money printing and borrowing are likely to continue.
- Moreover there is hope for vaccine which can drive the market higher.
- So far the economic data is coming better than expected. This may be due to pent up demand. If that is the case, economic data should weaken going forward.
Bubble Getting Bigger
At this time, the call remains that the bubble is likely to get bigger.
The measured target remains 3800 on S&P 500 (SPX) or 380 on ETF SPY. S&P 500 is trading around 3389 as of this writing.
FOMC Minutes
FOMC minutes will be released at 2:00 pm ET. They will provide more insights into the Fed’s thinking. Sometimes this is a market moving event. This time it will be a market moving event only if the minutes show some concern at the Fed about excessive money printing. However the consensus is that there is no such concern.
Momo Crowd And Smart Money In Stocks
The momo crowd is buying stocks in the early trade. Smart money is inactive.
Gold
The momo crowd is acting like a yo-yo in gold. Smart money is inactive.
The momo crowd is acting like a yo-yo in silver and miners. Smart is inactive in both.
For longer term, please see gold and silver ratings.
Oil
API showed a draw of crude inventories of 4.264M barrels vs. consensus of 2.670M barrels. This data is bearish. However the momo crowd does not seem to be concerned.
The momo crowd is buy oil in the early trade. Smart money is inactive.
For longer term, please see oil ratings.
Markets
Our very, very short-term early stock market indicator is neutral and can quickly swing either way. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.
Interest rates are ticking down and bonds are ticking up.
The dollar is stronger.
Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.
Gold futures are at $1998, silver futures are at $27.92, and oil futures are $42.72.
S&P 500 futures resistance levels are 3395, 3420 and 3460: support levels are 3320, 3278 and 3228.
DJIA futures are up 29 points.
OVERSTIMULATION — HOUSING AND BIG BOX RETAIL BOOM, WEAKER DOLLAR
To gain an edge, this is what you need to know today.
Overstimulation
It is no secret that we have been critical of the myopic policies of our leaders and the Fed. We are beginning to now see more signs of overstimulation.
- Blowout housing starts — Housing Starts came at 1.496M vs. 1.230M consensus.
- Blowout building permits — Building Permits came at 1.495M vs. 1.332M consensus.
- Big box retail boom — WMT and HD report blowout earnings significantly better than the most optimistic consensus and whisper numbers.
- Consumer sentiment boom — Kohl’s (KSS) says that this is the most bullish retail environment ever seen.
- Dollar falls to two year low.
- Overstimulation is occurring throughout the world — iron ore prices rise to six year high.
This overstimulation is great in the short term but it is very negative in the long term. Unfortunately, our politicians are not able to look beyond the November election and still are not providing enough help to the people who really need it. Investors need to stay nimble.
Momo Crowd And Smart Money In Stocks
The momo crowd is buying stocks in the early trade. Smart money is inactive.
Gold
The momo crowd is extremely aggressively buying gold, silver and miners. Smart money is inactive.
For longer term, please see gold and silver ratings.
Oil
The momo crowd is aggressively buying oil in the early trade. Smart money is inactive.
For longer term, please see oil ratings.
Markets
Our very, very short-term early stock market indicator is neutral but expect the momo crowd to push it higher and the market to open higher. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.
Interest rates and bonds are range bound.
The dollar is weaker.
Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.
Gold futures are at $2019, silver futures are at $28.45, and oil futures are $42.47.
S&P 500 futures resistance levels are 3390, 3420 and 3460: support levels are 3320, 3278 and 3228.
DJIA futures are up 13 points.
BUFFETT GOLD CONVERSION AFTER DERIDING GOLD – HERE IS WHY STOCK MARKET INVESTORS SHOULD CONVERT
To gain an edge, this is what you need to know today.
PBOC
People’s Bank of China (PBOC), equivalent of our Fed, injected additional liquidity into the market. This caused the Chinese market to run up. Some of that enthusiasm is being carried to the United States.
Wall Street Targets
Wall Street strategists continue to raise their targets for the stock market. The most notable this morning is Goldman Sachs (GS).
Buffett Buying Gold
Warren Buffett has an enviable long term record in the stock market although in recent years his stock market performance has been less impressive. Lately some newer investors in the momo (momentum) crowd that is controlling this stock market have criticized Warren Buffett. Buffett’s latest move shows that he is as sharp as ever.
Buffett has not been a fan of gold. As a matter of fact he has often derided gold. To the dismay of the gold bugs, Buffett has been the de facto leader of the anti-gold crowd. There has been a belief that investing in gold was akin to betting against America.
Buffett deserves credit for shifting his stance to the new reality as a result of irrational policies of massive borrowing and money printing by our leaders. Berkshire Hathaway (BRK.A) bought about 21 million shares of gold miner Barrick Gold (GOLD) spending about $563 million.
Warren Buffett’s conversion to gold is a signal for stock market investors to also convert. Let’s examine with the help of a chart.
The Chart
Please click here for a chart of gold ETF (GLD).
Gold has no earnings and does not pay a dividend. In analyzing gold, a chart is your best friend. The chart below is an annotated chart of gold ETF (GLD).
Note the following:
- The chart is a monthly chart to give investors a long term perspective.
- As shown on the chart, gold traced a very long base. The longer the base, the more important the move.
- The chart shows that gold broke out from a technical perspective.
- The chart shows that after the breakout, gold pulled back. This is a normal behavior because gold was very overbought going into the breakout.
- An important factor behind the pullback in gold is the rise in interest rates. Interest rates rose from the recent low of 0.51% to about 0.71%. When interest rates are low, gold does not like higher interest rates. Interest rates will continue to be one of the biggest determinate of how gold moves.
- Notice the pattern traced by RSI on the chart. This is a very bullish pattern for the long term.
- Gold is priced in U. S. dollars. Lately the U. S. dollar has weakened and this has benefited gold. However the weak dollar has become a crowded trade and the dollar is technically oversold. For this reason, there is a setup for dollar to move higher in the short term. An up move in the dollar will put pressure on gold to the downside.
- The policies of the U. S. government to borrow heavily and for the Fed to keep on printing money are not likely to change. Policies of central banks and governments across the globe are similar. These policies are the main driver behind gold’s rise and perhaps the reason behind Warren Buffett’s change of heart.
- Due to the policies of governments and central banks, investors may want to develop the habit of watching the price of gold just like they watch stock market popular index Dow Jones Industrial Average (DJIA).
- Investors have been hiding into the perceived safety of five big cap tech stocks of Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG) (GOOGL) and Facebook (FB). Investors should carefully watch these five stocks; if these stocks crack, some of the money seeking safety may move out of these stocks into gold.
- Gold is a very small market compared to the stock market. Even a small amount of inflows into gold from the big cap tech stocks may cause a big spike up in gold.
- Any big up move in gold may be positive for Bitcoin
Buffett Did Not Buy Bold
Even though the media is hyping Buffett buying gold, Buffett actually did not buy gold. He bought a gold miner with the symbol GOLD. Barrick Gold, the company Buffett bought pays dividend unlike gold.
There is merit to buying gold stocks. However there is too much hype around Barrick Gold because of Buffett buying. Investors may consider large cap gold stock Newmont Corporation (NEM) instead of Barrick Gold. Both Barrick Gold and Newmont Corporation are on our recommended list of gold stocks. Other gold stocks on our recommended list are IAMGOLD Corporation (IAG), Yamana Gold (AUY), Royal Gold (RGLD), Agnico Eagle Mines Limited (AEM) and Franco-Nevada Corporation (FNV). There are also silver mining stocks on the list.
Arbitrage Trade
In addition to long term investments in gold, silver and precious metal stocks, short term trading opportunities abound. For example, right now there is a short term trading opportunity to buy Newmont and short sell Barrick Gold. This is an arbitrage trade for those with the knowledge to take advantage of the move up in Barrick Gold stock due to Buffett related hype.
Buffett Betting Against America
Much has been said in the media about Buffett betting against the American economy by selling banks and buying Barrick Gold. Buffett has been selling JPMorgan Chase (JPM) and Wells Fargo (WFC). Two important points are worth noting:
- Barrick Gold is a very small position for Buffett relative to his total portfolio.
- Buffett has been buying Bank of America (BAC).
Caution
Several points of caution are in order including but not limited to the following:
- Gold is very volatile and it should be bought when it falls into the buy zone.
- Gold stocks are significantly more volatile than gold. However they present a more lucrative opportunity. These stocks should be bought by scaling in the buy zones.
- If interest rates rise, gold may fall.
- If the dollar rises, gold may fall.
- Gold is often sold at times of distress in the stock market as investors sell anything they can to meet margin calls.
- Central banks hold large amounts of gold. It is conceivable that central banks may start selling their gold.
- Gold is a very small market and it can be easily manipulated by the governments.
Momo Crowd And Smart Money In Stocks
The momo crowd is buying stocks in the early trade. Smart money is inactive.
Gold
The momo crowd is buying gold in the early trade. Smart money is inactive.
The momo crowd is aggressively buying silver. Smart money is inactive in silver.
For longer term, please see gold and silver ratings.
Oil
The momo crowd is buying oil in the early trade. Smart money is inactive.
For longer term, please see oil ratings.
Markets
Our very, very short-term early stock market indicator is positive but can quickly move to negative if the market fails to break to a new high. Expect momo crowd to run up the market. This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.
Interest rates are ticking down and bonds are ticking up.
The dollar is weaker.
Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.
Gold futures are at $1971, silver futures are at $27.32, and oil futures are $41.94.
S&P 500 futures resistance levels are 3390, 3420 and 3460: support levels are 3320, 3278 and 3228.
DJIA futures are up 116 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 29% – 37% and short to medium-term hedges of 3% – 8% and short term hedges of 3% – 10%.
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