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.
INFLATION FEARS RECEDE, TRUMP KOREAN BREAKTHROUGH MAY RESULT IN U. S. STOCKS TAKING ANOTHER UP LEG
To gain an edge, this is what you need to know today.
Block Buster Jobs Report
The just released jobs report is a block buster. Non-farm Private Payrolls came at 287K vs. 195K consensus.
Inflation Fears Recede
Market has been concerned about inflation. For this reason the most important component in the report is average hourly earnings. Average hourly earnings rose 0.15% vs. 0.20% consensus.
This is causing inflation fears to recede and stocks to rally.
Momo Crowd And Smart Money
The momo crowd is aggressively buying in the early trade.
The smart money is inactive.
Trump Breakthrough – Another Up Leg In Stocks
In a Korean breakthrough, a summit is set between Trump and North Korean leader Kim Jong-un .
Trump will justifiably take credit that his policy towards North Korea has worked.
Here is our analysis. If the summit succeeds, it will elevate Trump’s status as a leader. This will also help him in mid-term elections. Success of the summit or even prospects of a success may cause stocks to take another leg up.
Korean Stocks
Korean stocks are jumping on the news of Trump Korean Summit.
Tariffs
Trump has gone ahead with tariffs on steel and aluminum. Mexico and Canada are temporarily exempt.
Market is assuming that many other countries will also be able to get an exemption. Based on this assumption, the market has rallied.
China Response
Market is assuming that China will not materially respond to the tariffs.
Gold
Gold is being hit with receding inflation fears and higher interest rates.
Oil
Trading in oil is listless. The market is waiting for rig count to be released at 1:00 pm.
Technical Patterns
Oil service stocks are tracing a Diamond Bottom. This is bullish. ETF of interest is OIH.
Mining stocks are tracing a Top Triangle. This is bearish. ETF of interest is XME.
Brazilian stocks are tracing a Top Triangle. This is bearish. ETF of interest is EWZ.
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 positive.
Interest rates are ticking up and bonds are ticking down.
Dollar is slightly weaker.
Gold futures are at $1316, silver futures are at $16.42, and oil futures are $60.70.
S&P 500 resistance levels are 2765, 2800 and 2840; support levels are 2740, 2700, and 2688.
DJIA futures are up 195 points.
MARKET REBOUNDS ON SOFTER TARIFF STANCE, THE BIG DECISION AHEAD, ECB DAY
To gain an edge, this is what you need to know today.
Softer Tariff Stance
Peter Navarro, trade advisor to Trump, said that Mexico and Canada would be initially excluded from the tariffs. This softer stance lifted the market yesterday from being down about 300 points.
Today, Trump is likely to announce details of his decision on tariffs around 3:00 pm. Expect the market to move during the day based on rumors and tweets about what Trump will likely say and finally based on what Trump actually says.
The Big Decision
Has the current correction run its course? Will the current correction become much deeper? These are the key questions for investors. The answer depends, in large part, on decisions Trump makes on trade. A decision that Trump will make soon will give an early indication. We will do a separate post on the subject.
Smart Money And Momo Crowd
Yesterday after trade stance was softened, the smart money lightly bought and momo crowd aggressively bought. This morning, the momo crowd is aggressively buying but the smart money is inactive.
ECB Day
European Central Bank (ECB) has made an important change to the language regarding the stimulus it is providing the economy. The ECB has dropped the language to increase asset purchases if necessary. In plain English, expect less money printing from the ECB.
Euro is volatile after the change in the language.
Gold And Oil
Trading in gold and oil is listless.
Oil is showing a very high correlation to S&P 500.
Gold is moving in relation to moves in the dollar.
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 positive.
Interest rates are ticking down and bonds are ticking up.
Gold futures are at $1325, silver futures are at $16.51, and oil futures are $61.28.
S&P 500 resistance levels are 2740, 2765 and 2800; support levels are 2700, 2688, and 2661.
DJIA futures are up 101 points.
COHN LEAVES INCREASING RISKS TO THE MARKETS, MOMO FIRST SELLS AND IS NOW BUYING
To gain an edge, this is what you need to know today.
Cohn Resigns
Gary Cohn, the top economic advisor to Trump, has resigned. Cohn was against tariffs. He was also a moderate providing a balance against the hardliners in the White House.
Cohn leaving is increasing the risk of a trade war and in turn risks to the markets.
The Momo Crowd And Smart Money
The momo crowd first aggressively sold. At one point DJIA futures fell as low as 442 points on momo selling. As of this writing, the momo crowd is aggressively buying cutting the loss in futures by about one-half.
The smart money is beginning to very lightly sell as momo buying cuts the loss.
ADP
ADP is the largest private payroll processor. It uses its data to provide a picture of employment in the United States ahead of the official numbers.
ADP employment change came at 235K vs. 193K consensus. This indicates that already strong employment is getting stronger.
Dollar And Gold
Normally strength in the dollar and weakness in gold would have been expected after the strong ADP number. However today the ADP number is being lost due to the importance of Cohn’s resignation.
Gold and dollar are range bound with listless trading.
Oil
Oil fell after API inventory data showed a build of 5.661M barrels. As of this writing, the momo crowd is aggressively buying oil and running it up ahead of EIA data that will be released at 10:30 am ET.
Strength In Small Caps
There is strength in small caps on the theory that they derive most of their revenues from within the United States and thus will be hurt less if a trade war happens. However keep in mind that small caps tend to be more volatile than large caps. If there is a significant dip in the market, small caps may get hurt more than the large caps.
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 turn quickly on tweets and rumors about trade.
Interest rates and bonds are range bound.
Gold futures are at $1332, silver futures are at $16.65, and oil futures are $62.32.
S&P 500 resistance levels are 2740, 2765 and 2800; support levels are 2688, 2661, and 2631.
DJIA futures are down 251 points.
RYAN SAVES THE SCHIZOPHRENIC MARKET, GOOD NEWS FROM KOREA
To gain an edge, this is what you need to know today.
Ryan Saves The Market
Yesterday the market was going down about 150 DJIA points. Then Paul Ryan expressed concern over Trump’s tariff plan. This indicated that there is a split on tariffs in the GOP. This eased concerns of a trade war and the market took off to go up about 400 points.
Momo Crowd And Smart Money
Smart money started lightly buying on Ryan’s comment. As the momentum turned positive, the momo crowd became aggressive buyers.
In the early trade this morning, the momo crowd continues to be aggressive buyers and smart money is inactive.
Schizophrenic Market
The stock market is acting schizophrenic. It has wild swings. Often similar news is taken positive on one day and negative on another day by the stock market. How do investors measure this schizophrenia, what does it mean and how do investors navigate it? Let us explore with a chart.
The chart
Please click here for the annotated chart. The chart is of S&P 500 ETF (SPY). Similar observations can be made from the charts of Dow Jones Industrial Average (DJIA), Nasdaq 100 ETF (QQQ) and small cap ETF (IWM). Please observe the following from the chart:
- The chart shows three indicators: True Range, Average Daily Range, and Average True Range. These indicators are similar but have their own nuances. For practical purposes, investors need only one of these indicators. The reason for showing all three indicators is to keep the focus on the main point and avoid a debate on which indicator should have been used on the chart.
- The chart shows 2008 stock market crash.
- The chart shows various periods when the range expanded with red triangles.
- Range expansion is almost always associated with a dip.
- The chart shows that most of the dips have been small.
- Compare the range expansion this time with the range expansion during the 2008 crash. This is shown on the chart with two horizontal white lines.
The range has also expanded on popular stocks such as Amazon (AMZN), Facebook (FB), Alphabet (GOOG) (GOOGL), Netflix (NFLX), Micron (MU) and Applied Materials (AMAT).
Conclusion from the foregoing is that the probability of something more than a garden variety correction cannot be ruled out because the range has expanded more than the previous garden variety corrections. For this reason, investors need to be better prepared.
Good News From Korea
North Korea is floating the idea of giving up nukes. A summit between the leaders of North and South Korea will take place in April.
South Korean stocks are jumping. The positive sentiment is being carried to the United States.
Gold And Oil
Gold and oil are moving higher on a weaker dollar.
Technical Patterns
Gold miners are tracing a 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 market to open higher.
Interest rates are ticking up and bonds are ticking down.
Gold futures are at $1332, silver futures are at $16.65, and oil futures are $62.98.
S&P 500 resistance levels are 2740, 2765 and 2800; support levels are 2688, 2661 and 2631.
DJIA futures are up 131 points.
TWEETS AND RUMORS ON TRADE DOMINATE THE MARKETS, FIVE-STAR SURGES IN ITALY
To gain an edge, this is what you need to know today.
Trade
Tweets and rumors on trade dominate the markets. Trump is threatening to put tariffs on European autos. Europe puts a 10% tariff on U. S. autos. U. S. puts only 2.5% tariff on European autos.
Trump is also rejecting calls to exempt Mexico and Canada from tariffs on steel and aluminum unless NAFTA is renegotiated.
On the positive side, there is speculation that in his actual order, Trump will walk back. Another positive is that so far China is showing restraint.
Expect the market to move based on tweets and rumors. There is no way to predict who is going to tweet what and who is going to float which rumor.
Under these circumstances, the prudent course of action for most investors is to pay attention to the ‘What To Do Now’ section below.
Smart Money And Momo Crowd
In early trade, the smart money is inactive. The momo crowd is selling.
Gold
Trading in gold is listless.
In our analysis, if a trade war breaks out (the probability is not that high), it would be good for gold.
Oil
Oil is finding support as production in the largest oil field in Libya is interrupted.
In our analysis, if a trade war breaks out, it may result in a big drop in oil prices.
Italy
Anti establishment parties Five Star and Northern League gain more strength than anticipated in the Italian election. Overall no party has majority and Italy is facing political uncertainty. After initially dipping, Italian stocks and bonds are recovering.
Euro is struggling.
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 quickly more based on rumors.
Interest rates are ticking down and bonds are ticking up.
The dollar is stronger.
Gold futures are at $1322, silver futures are at $16.46, and oil futures are $61.28.
S&P 500 resistance levels are 2688, 2700 and 2740; support levels are 2661, 2631, and 2615.
DJIA futures are down 146 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% – 33% and short to medium-term hedges of 15% – 25% and very short term hedges of 20%.
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