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

Raise Cash

The market is going up but risks have not abated.  The plan is to raise cash as market goes higher.  You may recall that right at the market bottom on Christmas Eve, our call was to deploy cash.

This means to reduce or exit some long positions that you have been thinking of selling into the market strength.  Please see ‘What To Do Now’ section for specifics.

Bullish Signal Or A Head Fake

Semiconductors have often been a leading indicator for the market. Are they giving a bullish signal for the market now or is it just a head fake? Let’s explore with the help of a chart.

Please click here for an annotated chart comparing semiconductor ETF (SMH) to S&P 500 ETF (SPY). Similar conclusions can be drawn from a comparison of semiconductors to Dow Jones Industrial Average (DJIA), Nasdaq 100 ETF (QQQ) and small cap ETF (IWM). Please note the following:

• As shown on the chart, semiconductors gave several early signals that the stock market was about to drop. These signals were given when the market was near its highs.
• The chart shows that while the up move in the market has lost some of its momentum from the recent rally, semiconductors have staged a strong rally.
• The trigger for the rally was earnings from Xilinx (XLNX), Lam Research (LRCX), Teradyne (TER), Texas Instruments (TXN) and STMicroelectronics (STM).
• Earnings from Xilinx were excellent. However other earnings were not good enough to justify the strong rally in semiconductors.
• According to algorithms at The Arora Report, about one-third of the up move was because of a short squeeze.
• Semiconductors have been very oversold. Oversold sectors tend to rally when the news is not as bad as feared.
• Some of the sharpest rallies take place in a bear market.
• Earnings from Intel (INTC) were not good.
• The momo (momenturm) crowd is aggressively buying AMD (AMD) on the belief that if Intel earnings were not good, AMD must be taking share. However the hard data does not support this belief.
• Western Digital (WDC) threw a bone to investors claiming that the second half of 2019 will show growth. Western Digital offered no material data to support this contention.
• The data we have gathered at The Arora Report shows that the channel is still stuffed and there is excess inventory with key customers, demand is not strong and supply is higher than the demand. These are not great fundamental for the semiconductor sector at this time for the short term. The long term fundamentals for semiconductors are bright.
• Apple (AAPL) is a big buyer of semiconductors. Apple has already shown that the demand for smart phones is weak.
• Analysis of Intel’s earnings show that the demand is weak at cloud infrastructure providers such as Amazon (AMZN), Google (GOOG) (GOOGL) and Microsoft (MSFT).
• Lam Research earnings have caused other semiconductor equipment manufacturers such as Applied Materials (AMAT) and KLA-Tencor (KLAC) to rally. However, there is not good evidence of increasing capital expense by semiconductor companies.
• The bone that Western Digital threw to the investors without any material data is causing Seagate Technology (STX) and Micron (MU) to rally.
• Many semiconductor companies design their own products but contract out manufacturing to an outside foundry. Taiwan Semiconductor (TSM) is one of the most important contractors. It recently issued disappointing guidance.

The Bottoming Process

Semiconductors appear to be going through a bottoming process. Semiconductor stocks often bottom before the fundamentals bottom. The time to buy semiconductor stocks is usually a few months before fundamentals bottom.

Money Flows

Both momo crowd and short squeeze money flows are extremely positive in semiconductors. However smart money flows are overall neutral and selectively mild negative.

A Real Turn Or A Head Fake

At The Arora Report we monitor economic data from 23 countries. The world economy is slowing. In this macro environment, there is not enough support that fundamentals for semiconductors are close to a bottom.

Shutdown Optimism

The market is likely to jump up at the open on optimism that the government shutdown is getting closer to a resolution and on semiconductor rally.

Momo Crowd And Smart Money In Stocks

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

Gold

The momo crowd is aggressively buying gold.  Gold bulls are believing that the trade talks between the U. S. and China will not go well.  Smart money is inactive.

Oil

Oil is moving higher on unrest in Venezuela and the hardened stance of President Trump towards Venezuela.  The momo crowd is buying oil.  Smart money is inactive.

Marijuana

There is optimism in marijuana stocks on an upgrade of Canopy Growth (CGC).  The momo crowd is aggressively buying marijuana stocks.  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 positive but can quickly turn negative.

Interest rates are ticking up and bonds are ticking down.

Currencies are range bound.

Gold futures are at $1289, silver futures are at $15.55, and oil futures are $53.26.

S&P 500 resistance levels are 2661, 2688 and 2700; support levels are 2631, 2615 and 2594.

DJIA futures are up 237 points.

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

Jobless Claims Lowest Since 1969

Initial Jobless Claims came at 199K vs. 217K consensus.  This is the lowest number since 1969.  This is a leading indicator and carries heavy weight in our models.  This number is positive for the stock market.

Miles And Miles Away

Commerce Secretary Ross says that China and the U. S. are miles and miles away from resolving trade issues.  The market does not like this.

No Rate Hike In Europe Until 2020

ECB says no rate hike until 2020.  This is positive.

Momo Crowd And Smart Money In Stocks

The momo crowd is acting like a yo-yo this morning.  The smart money is inactive in stocks.

Gold

Trading in gold is listless.

Oil

Trading in oil is getting whipsawed based on news about China trade.

EIA data is due later today.

Marijuana

The momo crowd continues to buy marijuana stocks.  Smart money is selling into strength.

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 can swing either way based on news about China.

Interest rates are ticking down and bonds are ticking up.

Currencies are range bound.

Gold futures are at $1279, silver futures are at $15.32, and oil futures are $52.54.

S&P 500 resistance levels are 2658, 2661 and 2688; support levels are 2631, 2615 and 2594.

DJIA futures are down 24 points.

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

Trump Conundrum

Trump is facing a conundrum. He watches the stock market carefully. An easy way for him to prop up the stock market is to enter a soft trade deal with China and declare victory. However that is clearly not in the long term national interest. If Trump takes a hard line and there is no deal with China, the stock market will go down. Herein lies the conundrum.

What should investors do? This is the key question facing investors. Let’s explore with the help of a chart.

Please click here for an annotated chart of S&P 500 ETF (SPY). Similar conclusions can be drawn from charts of Dow Jones Industrial Average (DJIA), Nasdaq 100 ETF (QQQ) and small cap ETF (IWM). Please note the following:

• The chart shows that the market is in the resistance zone.
• The chart shows that the market has not broken the down trendline.
• The chart shows Arora signal to buy ETF SPY or leveraged S&P 500 ETF (SSO) that moves twice the move of S&P 500 (SPX). This signal was given on Christmas Eve which turned out to be the bottom.
• The chart shows that overbought condition has been temporarily relieved and this potentially sets up the market for a rally.
• The chart shows The Arora Report signal to take profits on the short term trade.
• The chart shows Arora signal to reduce cash and deploy in the market on Christmas Eve. This was meant for individual stocks and ETFs that had fallen into the previously given buy zones independent of the short term trade.
• The chart shows the signal to add a small short term hedge on this rally.
• This is an example of diversification by time frame as well as adjusting cash and hedge levels. This way if trades don’t work out in one time frame they work out in another time frame.

Momo Crowd And Smart Money In Stocks

The momo crowd is aggressively buying stocks this morning.  The smart money is inactive.

Gold

The momo crowd is selling gold. Smart money is inactive.

Oil

The momo crowd is buying oil.  The smart money is inactive.

Marijuana

The momo crowd is aggressively buying marijuana stocks.  Smart money is lightly and selectively selling into the strength.

Technical Patterns

Brazilian stocks are tracing a wedge.  This is bearish. ETF of interest is EWZ.

Energy stocks are tracing a wedge. This is bearish.  ETF of interest is XLE.

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 up and bonds are ticking down.

Currencies are mixed.

Gold futures are at $1280, silver futures are at $15.34, and oil futures are $53.16.

S&P 500 resistance levels are 2658, 2661 and 2688; support levels are 2631, 2615 and 2594.

DJIA futures are up 185  points.

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

Global Growth Concerns

IMF cuts global growth forecast to 3.5% from prior forecast of 3.7%.

China Growth

China GDP for the fourth quarter came at 6.4% in line with expectations.  For 2018 the growth was 6.6% – this is the slowest growth since 1990.

Warning From Switzerland

The Morning Capsule is mostly about the macro. However when a large Swiss bank that does business across the globe says that clients withdrew $13 billion in assets in late 2018, we have to listen and pay attention. The bank referenced here is UBS.  UBS is focused on wealth management, $8 billion of withdrawals came from this segment.

That was the fourth quarter of last year. What about the future?  UBS says clients are taking a ‘wait and see’ attitude.

Momo Crowd And Smart Money In Stocks

The momo crowd is selling stocks in the early trade. The smart money is inactive.

Gold

Trading in gold is listless.

Oil

Oil is being sold on China growth concerns.

Marijuana

Tilray (TLRY) is buying Natura Naturals, it is a small acquisition but generating positive sentiment.

Another short squeeze leg is occurring in some marijuana stocks while short squeeze appears to be ending in other marijuana stocks.

The momo crowd is buying marijuana stocks and the smart money is lightly selling marijuana stocks in the early trade.

Technical Patterns

Oil is tracing a head and shoulders bottom. This is bullish. 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 negative.

Interest rates are ticking down and bonds are ticking up.

Currencies are mixed.

Gold futures are at $1281, silver futures are at $15.31, and oil futures are $53.03.

S&P 500 resistance levels are 2658, 2661 and 2688; support levels are 2631, 2615 and 2594.

DJIA futures are down 147 points.