WEEKLY MARKET DIGEST: INCREASE CASH — AMERICANS EARN AND SPEND MORE BUT DATA WEAKENS IN VIRUS HOTSPOTS $DIA $GLD $QQQ $SLV $SPY $TBT $USO

WEEKLY MARKET DIGEST: INCREASE CASH — AMERICANS EARN AND SPEND MORE BUT DATA WEAKENS IN VIRUS HOTSPOTS $DIA $GLD $QQQ $SLV $SPY $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.

STRONG NEW INCOME AND SPENDING DATA, FED CAPS BANK DIVIDENDS AND PROHIBITS BUYBACKS

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

Strong Income And Spending Data

American’s are earning more and spending more than expected.

Personal Income came at -4.2% vs. -.6.0% consensus.

Personal Spending came +8.2% vs. +7.0% consensus.

Fed Is Worried

It is said, “Watch what they do and not what they say.”  The Fed’s latest action shows that the Fed is very worried about the economy as coronavirus spreads.   In an unexpected move, the Fed has ordered big banks to cap their dividends and have also prohibited buybacks. In our over 30 years in the markets, we have never seen banks so well capitalized.  So why is the Fed taking this drastic step? There is only one explanation.  The answer has to be that the Fed expects a realistic scenario in which the economy may become much worse as the coronavirus spreads.

Of course the stock market gurus think that the realistic potential of the economy getting much worse as shown by Fed’s latest action is good news and investors should become fully invested.  Their reasoning is that if the economy gets worse, the Fed will print more money and politicians will borrow more  money.  In our analysis, it is foolish to buy into this prevailing wisdom of a free lunch and becoming aggressive in the stock market with fully invested long term positions.  

Instead, consider following the protection bands. 

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 selling gold 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.

Marijuana

The momo crowd is buying marijuana stocks in the early trade.  Smart money is inactive.

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.  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 slightly weaker.

Gold futures are at $1771, silver futures are at $18.09, and oil futures are $38.14.

S&P 500 futures resistance levels are  3075, 3114 and  3124: support levels are 3009, 2924 and  2870.

DJIA futures are down 167  points.

INCREASE CASH — ECONOMIC DATA BEGINS TO WEAKEN IN VIRUS HOTSPOTS

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

Increase Cash

Increase cash as economic data begins to weaken in virus hotspots such as Florida and Texas. Please scroll down to ‘Protection Bands and What To Do Now?’  section.

Jobless Claims

Initial Jobless Claims came at 1.48M vs. 1.25M consensus.   This is a leading indicator and is worse than expected.

GDP

GDP Third Estimate came at -5.0% vs. -5.0% consensus.  This is a lagging indicator.

Durable Orders

Durable Orders Ex-transportation came at +4.0% vs. +2.1% consensus.

Headline Durable Orders came at +15.8% vs. +11.6% consensus. This strong data is due to pent up demand

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 buying gold 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 lightly selling oil.

For longer term, please see oil ratings.

Marijuana

There is no discernable momo crowd or smart money activity in marijuana.

Technical Patterns

Gold miners are tracing a double bottom.  This is bullish.  ETF of interest is GDX.

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 but can quickly reverse to become positive if a short squeeze starts.  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.

Gold futures are at $1773, silver futures are at $17.74, and oil futures are $37.32.

S&P 500 futures resistance levels are  3075, 3114 and  3124: support levels are  3009, 2924 and  2870.

DJIA futures are down 124 points.

STOCK MARKET’S FAILURE TO OVERCOME THE IMPORTANT REVERSAL PATTERN IS A CLUE FOR PRUDENT INVESTORS

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

Failure To Overcome The Reversal Pattern

I brought to your attention the important reversal pattern that occurred in the stock market. Expectations of the stock market bulls were that the important reversal pattern would be overcome in short order due to all the money that is floating around from the Federal Reserve’s policies and government stimulus. However the stock market has failed to negate the negative pattern so far. This is a valuable clue for prudent investors. Let’s explore with the help of a chart.

The Chart

Please click here for an annotated chart of Dow Jones Industrial Average ETF (DIA) which tracks the popular stock market index Dow Jones Industrial Average (DJIA).

Note the following:

  • The chart shows the reversal pattern.
  • The reversal pattern consisted of the following components: 1. An island reversal which was formed by the two gaps shown on the chart, 2. Arora sentiment indicator giving a sell signal near the top of the island, 3. RSI reaching an extremely overbought level while the island was being formed, 4. Heavy volume on gap down and 5. An inside day following the formation of the island reversal.
  • The chart shows that several attempts of the stock market bulls to overcome an important reversal pattern have failed. The failure is indicated by the price not being able to move above the line market ‘resistance’ on the chart and stay there for several days.
  • The chart shows that the volume has consistently stayed lower than the volume when the island was formed. This is a negative.
  • In a separate pane, the chart shows S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX). The pattern being traced by S&P 500 after the island reversal is more positive compared to the pattern traced by Dow Jones Industrial Average. This is a positive for the stock market.
  • The chart shows two travel related stocks, American Airlines (AAL) and Carnival (CCL). The reason for including these two stocks in the chart is that they were some of the strongest performers when the island was being formed and are also very popular stocks with the momo (momentum) crowd.
  • The chart shows that American Airlines secondary was done at $13.50, a far cry from over $23 level the stock reached when the island was being formed. Those who got carried away by the momentum and the possibilities of the economy opening are now sitting on a big loss in this stock.
  • The chart shows that Carnival, after reaching above $25 during the island formation has fallen to about $17, again causing big losses for those who got carried away with the momentum.
  • The chart shows that Carnival’s bonds have been downgraded.

What Does It All Mean?

The sum total of the foregoing is the following:

  • Investors need to be highly selective in new buying until this negative pattern is successfully overcome or the stock market pulls back.
  • Investors should not get carried away with the momentum and buy when certain stocks become very popular with the momo crowd.
  • Institutions are hiding in the big five tech stocks of Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG) (GOOGL) and Facebook (FB). Investors should carefully watch these stocks.

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade. Smart money is selling.

Gold

The momo crowd is buying gold 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.

Marijuana

The momo crowd is buying marijuana stocks in the early trade.  Smart money is inactive.

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.  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  up and bonds are ticking down.

The dollar is  stronger.

Gold futures are at $1775, silver futures are at $17.67, and oil futures are $39.82.

S&P 500 futures resistance levels are  3114, 3124 and  3155: support levels are  3075, 3009 and  2924.

DJIA futures are down 244 points.

WALK BACK ON CHINA TRADE DEAL ‘IS OVER’ TRIGGERS ANOTHER RALLY, REBALANCING POSES RISK OF HEAVY SELLING

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

Walk Back On Trade Deal With China ‘Is Over’

White House adviser Peter Navarro said last night in an interview that the trade deal with China was over.  Stock futures immediately fell and the dollar rose. Later on Navarro said that he was misunderstood.  President Trump tweeted that the trade deal with China is intact.

The Chart

Please click here for an annotated chart of S&P 500 futures.

Note the following:

  • The chart shows the drop on Navarro China comment.
  • The chart shows rally on the walk back.
  • Notice the high volume on the drop.
  • The chart shows a short squeeze that carried market to a high higher than the high before the drop.  Investors who sold short were forced to cover.
  • The chart shows as pajama traders woke up, their momo buying took the market to higher highs.
  • The foregoing illustrates the stock market mechanics and the momo crowd running up the stock market and not the fundamentals or  the macro. 

Rebalancing Risk

Pension funds will be rebalancing before the end of the quarter.  This poses a serious risk of selling of billions of dollars of stock.  Of course the momo crowd is oblivious to what is coming. The risk for the prudent investors is that the momo crowd is so oblivious to everything other than the momentum that they keep on buying no matter what.

Momo Crowd And Smart Money In Stocks

The momo crowd is aggressively buying stocks in the early trade. Smart money is lightly selling into the strength.

Gold

The momo crowd is aggressively buying gold in the early trade.  Smart money is lightly buying.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is aggressively buying oil in the early trade.  Smart money is lightly selling oil.

For longer term, please see oil ratings.

Marijuana

The momo crowd is buying marijuana stocks in the early trade.  Smart money is inactive.

Technical Patterns

Gold miners are tracing a symmetrical continuation triangle.  This is bullish.  ETF of interest is GDX.

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 stock market to open much 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 up and bonds are ticking down.

The dollar is weaker.

Gold futures are at $1776, silver futures are at $18.02, and oil futures are $41.18.

S&P 500 futures resistance levels are  3155, 3182 and  3228: support levels are  3124, 3114 and  3075.

DJIA futures are up 203 points.

THE SECRET SAUCE TO HANDLE STOCK MARKET’S ELECTION AND VIRUS FEARS, BUYING IN GOLD

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

Election And Coronavirus Fears

First and foremost, I am politically agnostic. My sole job is to help investors.

President Trump’s rally in Tulsa reportedly had only 6,200 attendees in a 19,000 seat venue. Trump campaign has disputed these numbers. There are also reports that anti Trumpers manipulated the Trump campaign that resulted in this low attendance. Nonetheless, election fears are creeping into the stock market. Before you send me hate mail, recall that I correctly called Trump election at a time when Wall Street had anointed Hilary Clinton as the next president and gave aggressive buy signal on Trump election. Further, I was calling for stock market Dow Jones Industrial Average (DJIA) to reach 30,000 when it was in the 16,000 range and nobody was calling for such a big rise in the stock market. I repeated the call several times. . Also note that as the stock market approached my target, Wall Street stock market strategists were raising their stock market targets much higher but I never raised my target.

This is on top of increasing coronavirus cases. The secret sauce to handle stock market’s election and coronavirus fears is risk management. Let’s explore with the help of a chart.

The Chart

Please click here for an annotated chart of Dow Jones Industrial Average ETF (DIA) which represents popular stock market index Dow Jones Industrial Average.

Note the following:

  • The chart shows that the stock market is in the support/resistance zone.
  • The chart shows that RSI is on a buy signal but is flattening.
  • The combination of the foregoing two items indicates that the risk in the stock market is much higher than generally believed.
  • Wall Street loves Trump. Now there is a fear that Biden will be elected. In our analysis at The Arora Report, it is simply too early to call the election.
  • If Biden gets elected, at a minimum, expect corporate income tax rate to go up from 21% to 28% and perhaps higher.
  • Take a look at the chart on the left side of ‘mother of support zones’. A part of the rise in the stock market is due to higher corporate earnings, in part, due to lower taxes and less regulation.
  • If Biden gets elected, expect earnings to take a hit of about 10% not only due to higher taxes but due to more regulation.
  • The chart shows that due to coronavirus, the stock market fell to the top band of the mother of support zones and then rallied strongly.
  • The chart shows that 65% of the first leg of the rally was short squeeze related. In practical terms it means that there is a lot of air under the market instead of solid support.
  • A strong counter balance to the election and coronavirus fears is the Federal Reserve policy.
  • The chart walks you through the increase in the Federal Reserve balance sheet from $0.87 trillion before the financial crisis to over $7 trillion now and on its way to $10 trillion based on the programs that the Fed has announced.
  • There is an important reversal pattern in the stock market that you should watch. Please click here for the chart . In view of this pattern, it is important to watch three sets of stocks. The mega-cap tech stocks of Apple (AAPL), Amazon (AMZN), Facebook (FB), Microsoft (MSFT) and Alphabet (GOOG) (GOOGL). Battle ground stocks that provide an important indication of sentiment such as including American Airlines (AAL), Carnival Cruise (CCL), Hertz (HTZ) and Nikola (NKLA). Semiconductor stock including Intel (), AMD (AMD) and Applied Materials (AMAT).
  • Consider watching gold ETF (GLD), silver ETF (SLV) and gold miner ETF (GDX). Gold is threatening to breakout and may turn out to be a good hedge against money printing that is driving the stock market up.

The Secret Sauce

Under these circumstances, the secret sauce to handle these risks is proper risk management. Proper risk management has the following elements that need to be orchestrated correctly:

  • A large amount of cash.
  • Hedges or more cash for those who do not want to hedge.
  • Protection band.
  • Good long term positions based on fundamentals.
  • Short to medium term tactical positions.
  • Proper diversification based on sectors, strategies, time frames, correlations and geography.
  • Short positions for those who are sophisticated and experienced or in the alternate inverse ETFs.
  • Judicious use of stop losses or changes in allocations.
  • Differentiation between strategic and tactical actions.
  • Booking some profits as signals are given.
  • Reliable sources of technical, fundamental and macro analysis.
  • Staying nimble.

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade. Smart money is very lightly selling stocks.

Gold

Gold is threatening a breakout as concerns about money printing rise.

The momo is aggressively buying gold in the early trade.  Smart money is very lightly buying gold.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is buying oil in the early trade. Smart money is lightly selling oil.

For longer term, please see oil ratings.

Marijuana

The momo crowd is buying marijuana stocks in the early trade. Smart money is inactive.

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 but can easily swing positive.  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.

Gold futures are at $1771, silver futures are at $18.08, and oil futures are $39.64.

S&P 500 futures resistance levels are 3114, 3124 and 3155: support levels are 3075, 3009 and 2924.

DJIA futures are up 164 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%.

 

A knowledgeable investor would have turned $100,000 into over $1,000,000 with the help from The Arora Report. NOW YOU TOO CAN ALSO SPECTACULARLY SUCCEED AT MEETING YOUR GOALS WITH THE HELP OF THE ARORA REPORT. You are receiving less than 2% of the content from our paid services. …TO RECEIVE REMAINING 98% INCLUDING MANY ATTRACTIVE INVESTMENT OPPORTUNITIES, TAKE A FREE TRIAL TO PAID SERVICES.

Please click here to take advantage of a FREE  30 day trial.

Check out our enviable performance in both bull and bear markets.

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