WEEKLY MARKET DIGEST: INFLATION LESS THAN EXPECTED, TRUMP DRUG PLAN, REDUCING CASH $DIA $GLD $QQQ $SLV $SPY $TBT $USO

WEEKLY MARKET DIGEST: INFLATION LESS THAN EXPECTED, TRUMP DRUG PLAN, REDUCING CASH $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.

BULLS BREAK THE DOWNTREND, TRUMP DRUG PLAN, REDUCE CASH AND HEDGES

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

Bulls Break The Downtrend

Bulls have broken the downtrend. Will it last? Let us explore with the help of a chart.

The Chart

Please click here for an annotated chart 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 downtrend line has been broken. Even if the market slips below this trend line again, this break is significant.
  • The chart shows the formation of a descending triangle. If the breakout becomes decisive, it is an indication of a potential significant up move.
  • The chart shows a triple bottom. The triple bottom will offer support for any subsequent correction.
  • In formation of the triple bottom, it is significant to note the pattern of higher lows. This is positive.
  • RSI shows higher low before the rally. This is positive.
  • The rally is on low volume. This is negative.
  • The market has moved up too quickly too far. There may be a short term pullback.

Will It Last?

Based on the traditional technical analysis, the up move should last.

Important Caution

If traditional technical analysis always worked, good technicians would be trillionaires. Forget trillionaires, do you know any pure technicians that are billionaires?

Further as the time progresses, traditional technical analysis does not work as well as it did in the past. To understand the reasons behind this, please click here.

At The Arora Report we use ZYX Global Asset Allocation Model that has inputs in 10 categories.  Please click here to see the 10 categories.

Reduce Cash And Hedges

Based on the model, The Arora Report is reducing allocation to cash and hedges.  The plan is to deploy cash into special situations and existing positions. Please see ‘What To Do Now’ section below.

Momo Crowd And Smart Money

The momo crowd is lightly buying this morning.  Smart money is inactive.

Gold

Gold is being bought on slightly weaker dollar.

The momo crowd is buying gold but smart money is inactive.

Oil

Oil continues to levitate on concerns about potential increase in hostilities between Iran and Israel over the weekend.

Trump Drug Plan

Trump will unveil his long awaited drug plan to lower prices. Rumors are that the plan will not allow Medicare to seek open bidding on everything — the most effective weapon to lower drug prices.  If true, this indicates that Trump caved in to the powerful drug lobby.

Technical Patterns

Small cap growth stocks are breaking out.  This is bullish.  ETF of interest is VBK.

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 are slightly higher and interest rates are slightly lower.

Dollar is slightly weaker.

Gold futures are at $1325, silver futures are at $16.84, and oil futures are $71.35.

S&P 500 resistance levels are 2740, 2765 and 2800; support levels are 2700, 2688 and 2661.

DJIA futures are up 32  points.

 

INFLATION LESS THAN EXPECTED, GOLD RISES, STUNNER IN MALAYSIAN ELECTION

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

Inflation Less Than Expected

Core Consumer Price Index came at 0.1% vs. 0.2% consensus.  Used car prices fell the most since 2009.  Airfares fell more than any other time in the last four years.

Smart Money And Momo Crowd

The momo crowd is aggressively buying stocks in the early trade.

Gold

Gold is rising on lower than expected inflation.  This is a perverse action since traditionally gold goes down on lower inflation over a long period of time.  The reason gold is rising is the pattern of the momo crowd over the last several years to buy gold on lower inflation and sell gold on higher inflation.  The theory is that lower inflation means lower interest rates.  Since gold does not pay interest, lower interest rates are good for gold.

Jobless Claims

Jobless Claims came at 211K vs. 220K consensus.  This is a leading indicator and should be on the radar of all investors.

Oil

Oil is rising on reports that Iran has fired from its base in Syria on Israel.  Iran is denying that report.

Stunner In Malaysian Election

Markets are stunned on the victory of 92 year old Mahathir Mohamad ending over a 60 year reign of the ruling party.

Of course, it is not a surprise for the subscribers of The Arora Report.  In ZYX Emerging on May 5th prior to the fall in Malaysian stocks, we wrote:

Malaysia will have an election on May 9th.  The stock market is very optimistic. However we think there is too much risk to the down side at this time.  Out of abundance of caution, unless you are holding Malaysia for the very long term, consider taking profits and exiting the position.

Ratings

We are downgrading Malaysia to Neutral in the short-term.

We expect Malaysian markets to be highly volatile and may provide an opportunity.  There will be a post in ZYX Emerging at the appropriate time.

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 but can quickly turn negative.

Interest rates are ticking down and bonds are ticking up.

The dollar has been strong but is ticking down.

Gold futures are at $1322, silver futures are at $16.75, and oil futures are $71.53.

S&P 500 resistance levels are 2740, 2765 and 2800; support levels are 2688,  2661 and 2631.

DJIA futures are up 40 points.

REACTION TO TRUMP WITHDRAWING FROM IRAN DEAL

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

Trump Decision

Trump has made a decision for a clean withdrawal from Iran deal.  Here is the reaction of various markets.

  • Oil was first sold but is being aggressively bought this morning.
  • Stocks were first sold but are being aggressively bought this morning.
  • Stocks are moving up because oil stocks are moving up and the uncertainty of Trump decision is behind us. The reaction this morning may turn out to be wrong.  Higher oil and more Middle East tensions are not good for the stock market in the long run.
  • Bonds are being sold as interest rates rise.
  • Dollar is stable.
  • Gold is being lightly bought on the prospect of higher tensions.

Smart Money And Momo Crowd

The reaction in various markets described above is being driven by the momo crowd.  Smart Money is inactive.

PPI

Core Producer Price Index (PPI) came at 0.2% vs. 0.2% consensus. In theory PPI is a leading indicator of inflation as inflation at the producer level ultimately gets passes on to the consumers.

Technical Patterns

The stocks in Chile are tracing a Double Top.  This is bearish. ETF of interest is ECH.

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 but is likely to turn negative quickly.

Gold futures are at $1313, silver futures are at $16.53, and oil futures are $70.73.

S&P 500 resistance levels are 2688, 2700 and 2740; support levels are 2661,  2631 and 2615.

DJIA futures are up 88 points.

TRUMP CALL ON IRAN AT 2:00 PM ET — SIMPLE OR PERVERSE REACTION

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

Trump Call

Trump has moved up his decision from May 12th to today at 2:00 pm.  The decision can have a wide variety of implications.  Here is where experience comes in.  The market reaction may be simple or perverse or fluctuate between the two.  Further the immediate reaction may be different than the longer term reaction.

Simple Reaction

The simple reaction may be to buy oil and oil stocks, and sell the stock market.

Perverse Reaction

Consider the following points.

  • Trump may not outright withdraw but give more time.
  • Trump may conditionally withdraw.
  • Stock market may first go up because the uncertainty will be over.  The stock market often goes up after decisions are made.
  • Later the stock market may go down because of uncertainty of what Iran may do. Oil has been running up in anticipation of the news. There may be a ‘sell the news’ reaction.

There are many more possibilities.

Oil Positions

There is OIH in ZYX Global.  There are RDS-B, HAL, OAS and MRO in ZYX Buy.  For new short-term trades,  look at three ETFs: USO, UWT and DWT.

The Rest

Nothing else matters today.

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.

Gold futures are at $1310, silver futures are at $16.47, and oil futures are $70.24.

S&P 500 resistance levels are 2688, 2700 and 2740; support levels are 2661,  2631 and 2615.

DJIA futures are down 23  points.

OIL SPIKES OVER $70 FOR THE FIRST TIME SINCE 2014, MOMO BUYING STOCKS, HEAVY BORROWING

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

Oil Spikes

Oil is spiking above $70 for the first time since 2014. The reason is the concern that Trump will withdraw from the Iran nuclear deal.  The deadline is May 12th.

In the short term, the stock market likes this because oil stocks go up. In the long term rising oil is a negative.

Momo And Smart Money

The momo crowd is aggressively buying stocks in the early trade.  Buying is especially strong in popular technology stocks. The trigger seems to be bullishness coming out of Buffett.

As good as Buffett is, it is worth remembering that Buffett is talking up his own book.  In plain English, Buffett owns a lot of stocks, it is in his own best interest to try to talk stocks up.

The smart money is inactive.  Remember Buffett is part of smart money but he is not buying now.  He appears to have bought a while ago on dips.  Unfortunately, many unsophisticated investors do not understand this and are buying now.

Heavy Borrowing

The U. S. Treasury is heavily borrowing this week to finance the big deficit. The Treasury will sell $90 billion of bills today at 11:30 am ET.  $73 billion more of debt will be sold on Friday.

Since the momo crowd is controlling the market, and the momo crowd is mostly oblivious to anything other than the momentum, the rising debt and deficit is being temporarily ignored. However it is important for prudent investors to keep an eye on how the Treasure auctions go. We will be keeping an eye on this.

Gold

Trading in gold is listless.  In theory the prospect of Trump withdrawing from the Iran nuclear deal should help gold run up. But so far gold seems to be influenced by the stronger dollar and ignoring the geopolitics.  Gold ignoring geopolitics may not last.  Historically gold is a hedge against geopolitics.

Technical Patterns

Nasdaq 100 is tracing a Flag. This is bullish. ETF of interest is QQQ.

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 but can quickly turn negative.

Dollar is stronger.

Interest rates are ticking down and bonds are ticking up.

Gold futures are at $1313, silver futures are at $16.80, and oil futures are $70.48.

S&P 500 resistance levels are 2688, 2700 and 2740; support levels are 2661,  2631 and 2615.

DJIA futures are up 84 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 20% – 35% and short to medium-term hedges of  15% – 25% and very short term hedges of 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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