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.
INVESTORS SPOOKED ON THE PROSPECT OF A TRADE WAR BUT PROBABILITY OF MATERIAL DAMAGE NOT THAT HIGH
To gain an edge, this is what you need to know today.
Investors Spooked
Trump’s actions have the potential to start a trade war. Certainly there will be lots of noise but in our analysis, the probability of a trade war happening with significant consequences is not that high.
It is simply prudent to take protective steps. Please pay attention to the ‘What To Do Now’ section below by scrolling down.
The Chart
Please click here for the annotated chart of S&P 500 ETF (SPY). Similar conclusions can be drawn from the charts of Dow Jones Industrial Average (DJIA), DJIA ETF (DIA), and Nasdaq 100 ETF (QQQ). Please note the following from the chart:
- The most important observation from the chart is that the VUD indicator was consistently orange. VUD indicator is the most sensitive indicator of supply and demand in real time. When demand for stocks is higher than the supply in real time, it is bullish and the indicator is green. When the supply of stocks exceeds demand in real time, the indictor is orange. The indicator has been orange showing persistent net selling.
- The Arora Report warned investors of the potential trade war in the Morning Capsule that is made available to its subscribers before the market opens. We wrote well before the news of tariffs hit, “Trump is set to announce tariffs on steel and aluminum. The rumor is that he will impose harsh duties of 25% on steel and 10% on aluminum from all countries. We will keep a close watch to see if it starts a trade war. If it does, we will need to make changes to our portfolios. The key will be to get ahead of the crowd.”
- The chart shows that hours later the news of tariffs hit.
- The market fell hard on the news.
- The chart shows the timing of the Arora call to increase cash and hedges by specified amounts out of abundance of caution even though in our analysis the probability of significant trade war is not that high. Our philosophy is that return of capital is more important than return on capital.
Changes To The Portfolio
There is a lot of rhetoric for the inexperienced eye. However based on our over 30 years in the markets, the rhetoric is significantly less severe than would have been the case in the past. For this reason, at this time, we will be slow to make changes and simply observe. We did increase cash and hedge levels yesterday.
Smart Money And Momo Crowd
Smart money was lightly selling yesterday before the news hit while the momo crowd was aggressively buying. After the news hit, the smart money continued to sell lightly for about 30 minutes and then stopped while the momo crowd continued to buy. Then the momo crowd started aggressively selling. Then in the last half hour the momo crowd was aggressively buying.
In the early trade this morning, the momo crowd is aggressively selling. The smart money is inactive. It appears that smart money is already positioned well if there is a down turn as they have been consistently trimming into the rallies.
Gold
Gold is benefiting from the turmoil in the stock market. Smart money is lightly buying gold.
Oil
Oil got hit along with the stock market.
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 turn around.
Interest rates are ticking up and bonds are ticking down.
Currencies are mixed.
Gold futures are at $1324, silver futures are at $16.51, and oil futures are $60.88.
S&P 500 resistance levels are 2688, 2700 and 2740; support levels are 2631, 2615, and 2594.
DJIA futures are down 272 points.
JOBLESS CLAIMS AT 49 YEAR LOW, POWELL TESTIMONY AND TRUMP SALVO AHEAD, INDIA THE FASTEST GROWING
To gain an edge, this is what you need to know today.
Jobless Claims At 49 Year Low
Initial Jobless Claims came at 210K vs. 226K consensus. This is a 49 year low.
This is a leading indicator and for this reason carries heavy weight in our models.
It is important to focus on leading indicators and not on lagging indicators.
Tame Inflation Data
For a change, the latest inflation data just released is tame. This should help the stock market.
PCI Prices – Core came at 0.3% vs. 0.3% consensus.
Powell Testimony
The Fed chair Powell will be testifying before the Senate Banking Committee at 10:00 am. Expect him to back peddle to undo the damage to the market his last testimony did. If he succeeds expect the market to go higher. If he does not succeed expect the market to go lower.
Trump Salvo
Trump is set to announce tariffs on steel and aluminum. The rumor is that he will impose harsh duties of 25% on steel and 10% on aluminum from all countries. We will keep a close watch to see if it starts a trade war. If it does, we will need to make changes to our portfolios. The key will be to get ahead of the crowd.
Smart Money And Momo Crowd
We wrote in yesterday’s Morning Capsule:
In the early trade this morning, the momo crowd is aggressively buying again.
Aggressive buying by the momo crowd ran the market up by about 167 DJIA points. The smart money lightly sold into the strength causing a small pull back. On the small pull back, the momo crowd started selling. The momo crowd selling became aggressive in the afternoon driving the market down about 380 DJIA points. This morning prior to the release of economic data at 8:30 am, the momo crowd was selling. After the release of the data the momo crowd started lightly buying.
The smart money is inactive.
New Month Money
In the first couple of days of a new month, new money pours into the stock market. Much of it goes to passive index funds. These funds simply buy regardless of what is happening in the market and the data. Their defense of disregarding the data is that people send them the money and their job is to put in into the market, it is not their job to see if it should be put into the market.
The new money will provide some support for the market today.
India The Fastest Growing
India is now again officially the fastest growing country in the world. It has surpassed China.
GDP in the last quarter grew at 7.2%. In contrast, GDP in the United States grew at 2.5%.
For an easy way to invest in India, ZYX Emerging has continuously covered India and 15 other emerging markets for over a decade.
Gold And Oil
Gold and oil are under pressure due to strength in the dollar.
Technical Patterns
Oil is tracing a Flag. This is bearish. ETF of interest is USO.
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 can change quickly based on Powell’s testimony.
Interest rates are ticking down and bonds are ticking up.
Gold futures are at $1310, silver futures are at $16.28, and oil futures are $61.21.
S&P 500 resistance levels are 2740, 2765 and 2800; support levels are 2700, 2688, and 2661.
DJIA futures are down 11 points.
POWELL ROCKS THE BOAT
To gain an edge, this is what you need to know today.
Powell Rocks The Boat
In yesterday’s Morning Capsule we wrote:
In the prepared text of his testimony, Powell is bullish. He appears to be trying to please both Democrats and Republicans. Critical Q&A session is ahead. Powell will likely be asked tough questions from the House members. It is not uncommon for the answer of a Fed Chair to rock the boat, although Powell will certainly try to not rock the boat.
DJIA was up about 100 points when Powell rocked the boat, perhaps unintentionally. Powell comments were more hawkish than expected. DJIA not only lost the 100 point gain but went on to close down about 300 points.
Momo Whipsawed
As we have kept you informed, the momo crowd was buying aggressively the day before yesterday, lightly yesterday early morning and aggressively after the market opened yesterday. We wrote yesterday in the Morning Capsule:
The momo crowd is lightly buying in early trade. The momo crowd was especially aggressive buying all day long yesterday and became extremely aggressive during the last hour.
The smart money was inactive for much of the day but very lightly sold when DJIA was approaching up 400 points. The smart money is inactive in early trade.
Smart money sold on Powell’s comments. As the market started going down, the momo crowd started selling and was aggressive sellers yesterday afternoon. As is often the case, the momo crowd got whipsawed.
In the early trade this morning, the momo crowd is aggressively buying again. The smart money is inactive.
Gold
Gold took a hit on Powell’s comments. The reason is that the dollar rose. Gold moves inverse to the dollar.
Oil
API inventory data came at a build of 933K barrels vs. consensus of 800K. This caused selling in oil. However this morning the momo crowd is aggressively buying oil ahead of the EIA numbers that will be released at 10:30 am ET.
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 open higher.
Interest rates and bonds are range bound.
Gold futures are at $1318, silver futures are at $16.40, and oil futures are $63.04.
S&P 500 resistance levels are 2765, 2800 and 2840; support levels are 2740, 2700, and 2688.
DJIA futures are up 85 points.
POWELL BULLISH BUT CRITICAL Q&A AHEAD
To gain an edge, this is what you need to know today.
Powell Bullish
In the prepared text of his testimony, Powell is bullish. He appears to be trying to please both Democrats and Republicans. Critical Q&A session is ahead. Powell will likely be asked tough questions from the House members. It is not uncommon for the answer of a Fed Chair to rock the boat, although Powell will certainly try to not rock the boat.
Momo Crowd And Smart Money
The momo crowd is lightly buying in early trade. The momo crowd was especially aggressive buying all day long yesterday and became extremely aggressive during the last hour.
The smart money was inactive for much of the day but very lightly sold when DJIA was approaching up 400 points. The smart money is inactive in early trade.
Gold
Trading in gold is listless as all of the fundamental data is now in the price.
Oil
The momo crowd is lightly buying oil. There is a potential of a short squeeze in oil, however smart money is lightly selling oil into the strength.
Technical Patterns
Biotechs are tracing a Flag. This is bullish. ETFs of interest are IBB and XBI.
Oil service stocks are tracing a Hanging Man. This is bearish. ETF of interest is OIH.
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 can turn either way based on Powell’s Q&A.
Dollar is ticking higher.
Interest rates are ticking lower and bonds are ticking higher.
Gold futures are at $1329, silver futures are at $16.58, and oil futures are $63.72.
S&P 500 resistance levels are 2800, 2840 and 2860; support levels are 2765, 2740, and 2700.
DJIA futures are down 32 points.
BOND RALLY AND POWELL SPECULATION IGNITES BUYING IN EVERYTHING EXCEPT THE DOLLAR
To gain an edge, this is what you need to know today.
Bond Rally
On Friday morning we wrote,
At present, the bond market is very oversold. Bonds rally to relieve the oversold condition. Such a bond rally may ignite a short term rally in stocks.
This call has been proven spot on as this is exactly what happened afterwards on Friday and continues this morning in early trade.
Powell Speculation
Fed Chairman Powell will be testifying before the House tomorrow and the Senate on Wednesday.
Speculation is swirling around that Powell is willing to accept 2.5% inflation to prolong the nine year U. S. economic expansion. Corollary is that the new Fed Chair, appointed by President Trump, is seeking to extend the stock market rally.
Buy Everything But The Dollar
The bond rally and Powell speculation is igniting buying in everything including stocks, gold, oil and other commodities. The dollar is being sold.
The momo crowd is aggressively buying stocks, bonds, gold, oil and other commodities but aggressively selling the dollar.
Smart Money
The smart money is inactive.
Technical Patterns
Indian stocks are tracing a Symmetrical Continuation Triangle. This is bullish. The ETF of choice is EPI. As a full disclosure, ZYX Global and ZYX Emerging have positions in EPI.
Shares in Taiwan are tracing a Flag. This is bullish. The ETF of interest is EWT.
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.
Gold futures are at $1336, silver futures are at $16.65, and oil futures are $63.37.
S&P 500 resistance levels are 2765, 2800 and 2840; support levels are 2740, 2700, and 2688.
DJIA futures are up 137 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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