(The Weekly Digest reproduces the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers. )
JIHADIST INCIDENT IN MALI SUPPORTS GOLD, OIL AND STOCKS; THE WEEK AFTER NOVEMBER EXPIRATION IS DIFFERENT
This is what you need to know today.
Oil was breaking down when the news of Jihadist taking 170 hostages in Mali came. The incident is providing support to oil and gold. Even copper is running up.
After initial down tick on the news, paradoxically stocks in Europe moved up on the news. Investors remember that after the Paris attack stocks moved up.
Monday morning, right after the Paris attack, we shared with you that traders were buying, option expiration pressure was on the upside and market was likely to move upward on Monday, Tuesday and Wednesday. This is exactly what has happened. Typically in the week after option expiration, at least part of the option expiration action is reversed. November is different, typically the week after option expiration is positive. Options expire tomorrow.
Interest rates are hanging near their lows.
The action in Mali will provide some support to gold, silver and oil going into the weekend.
Stocks are very overbought in the very short-term. This up move is not supported by fundamentals or macro conditions.
December oil futures expire today, this may lead to a lot of volatility and technical selling on a break below $40.
Our very, very short-term early stock market indicator is neutral.
What To Do Now?
It is important for investors to look ahead and not in the rear view mirror.
Consider only adding new positions per new posts since October 1st.
Consider continuing to hold existing positions. Based on individual risk preference, continue to hold 30-50% cash or hedges.
It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.
Gold futures are at $1082, silver futures are at $14.61, and oil futures are $41.49.
S&P 500 resistance levels are 2100, 2111, and 2132; support levels are 2063, 2038, and 2017.
DJIA futures are up 76 points.
Individual Trades
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Click on the Search by Symbol/Tag on the right hand side and click on the symbols of interest to you.
FED INDICATES DECEMBER LIFTOFF BUT READING THE TEA LEAVES TELLS A NEW STORY
This is what you need to know today.
FOMC minutes indicate that the Fed is set for a rate increase in December. However, reading the tea leaves tells a new story. Until now, our analysis of past FOMC minutes has been that the Fed is likely to raise rates by 100 basis points in 2016 (100 basis points equals 1%).
Reading the tea leaves from yesterday’s release, the Fed is likely to not even raise rates in 2016. The foregoing is likely to have major impact on our timing models. The weekly timing models will be computed this weekend and there may be a change by Monday.
We expect gold and silver to stage a minor rally.
Oil should fall below $40 if short squeezes do not get in the way.
Interest rates should fall and dollar may also fall temporarily.
Our very, very short-term early stock market indicator is negative.
What To Do Now?
It is important for investors to look ahead and not in the rear view mirror.
Consider only adding new positions per new posts since October 1st.
Consider continuing to hold existing positions. Based on individual risk preference, continue to hold 30-50% cash or hedges.
It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.
Gold futures are at $1070, silver futures are at $14.10, and oil futures are $41.49.
S&P 500 resistance levels are 2100, 2111, and 2132; support levels are 2038, 2017, and 2000.
DJIA futures are down 32 points.
Individual Trades
Please click on Home on the left side of the Menu. Scroll down on the Home Page for individual trades.
Click on the Search by Symbol/Tag on the right hand side and click on the symbols of interest to you.
STOCKS CELEBRATE PARIS RAID, HOUSING DATA AND API DATA; WAIT BEGINS FOR DOE DATA AND FOMC MINUTES
Technical Picture
Yesterday, S&P futures broke a major support at 2050 and closed below it. Overnight they drifted lower to 2043. Coming into this morning, the technical picture was decidedly negative. Then came the news of police raid in Paris. Stocks in Europe celebrated by ticking up. Futures in the U. S. moved up in sympathy.
After weak housing data was released, futures took another leg up. Housing starts came at 1060K vs. 1173K consensus. Market is interpreting the weak data as positive. As our long-term subscribers know, our models give heavier weight to new permits compared to housing starts. The reason is that housing starts are a lagging indicator and building permits are a leading indicator.
Building permits came at 1150K vs. 1137K consensus, this is a bullish number. The Fed will take into account the permit number, Fed members are top notch economists. Of course as is often the case, stock market is responding to the headline of weak numbers without analyzing the full report.
Oil
Oil was threatening to break $40 when a bullish API report came leading to a leg up and short covering. API report showed that inventories fell by 482K barrels vs. consensus of a build.
A more credible report from DOE will be released at 10:30 am ET.
Important notice: We have switched over to January oil contract from December oil contract. January contract is trading higher than December contract. To take into account the cost of extra storage.
FOMC Minutes
Market is eagerly awaiting FOMC meeting minutes to be released at 2:00 pm ET. The minutes may give clues as to Fed raising rates in December.
Other
Gold and silver continue to drift down.
Interest rates are range bound.
Our very, very short-term early stock market indicator is positive but can quickly swing negative.
What To Do Now?
A year-end rally is likely. The plan at this time is to position for a year-end rally in a defensive manner. Further the plan is to position for a January Effect. A list of over 50 January Effect stocks with buy zones and position size will be published on ZYX Buy Change Alert in the near future.
It is important for investors to look ahead and not in the rear view mirror.
Consider only adding new positions per new posts since October 1st.
Consider continuing to hold existing positions. Based on individual risk preference, continue to hold 30-50% cash or hedges.
It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.
Gold futures are at $1067, silver futures are at $14.05, and oil futures are $42.25.
S&P 500 resistance levels are 2100, 2111, and 2132; support levels are 2038, 2017, and 2000.
DJIA futures are up 49 points.
MARKET MECHANICS AND NOT FUNDAMENTALS PROPEL STOCKS, FRENCH AND GREEK STOCKS RALLY
Yesterday morning when many were thinking of a big down move in stocks following the Paris attacks, we told you in advance of the rally that traders were buying. We also explained the mechanics behind the potential up move. Now with the benefit of hindsight, we can safely say that the strong rally in stocks yesterday was the result of market mechanics described in the Morning Capsule and fundamental based.
Encouraged by the rally in the U. S., stock markets all over the world are rallying. Even French stocks have rallied over 2%.
We expect the rally to continue, at least at the open because of the same mechanics.
Stocks and bonds in Greece are rallying as the country reaches an agreement with international lenders for the next tranche of bail-out money.
Core CPI came at 0.2% vs. 0.2% consensus. However Industrial Production came at -0.2% vs. +0.2% consensus.
The same market mechanics are pushing oil, interest rates and dollar higher; and gold lower.
After hitting a new low at $2.10 in Asian trading, copper is experiencing a massive short squeeze in the U. S. market.
Our very, very short-term early stock market indicator is positive.
What To Do Now?
A year-end rally is likely. The plan at this time is to position for a year-end rally in a defensive manner. Further the plan is to position for a January Effect. A list of over 50 January Effect stocks with buy zones and position size will be published on ZYX Buy Change Alert in the near future.
It is important for investors to look ahead and not in the rear view mirror.
Consider only adding new positions per new posts since October 1st.
Consider continuing to hold existing positions. Based on individual risk preference, continue to hold 30-50% cash or hedges.
It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.
Gold futures are at $1078, silver futures are at $14.20, and oil futures are $41.43.
S&P 500 resistance levels are 2064, 2100, and 2111; support levels are 2038, 2017, and 2000.
DJIA futures are up 72 points.
TRADERS BUY AGGRESSIVELY ON PARIS ATTACKS, JAPAN ENTERS A RECESSION
Chronology
Friday evening, as the first news of Paris attacks emerged, all major markets were closed with the exception of trading on U. S. ECNs. The reaction on ECNs was understandable — stocks down, gold, bonds, and oil up.
The first markets to open were Middle Eastern markets that opened on Sunday. Many of these markets were down 2% to 5%. Then is was the turn of futures on Asian markets, they were ugly. The news of Japan falling into a recession did not help.
European markets started lower.
In Chicago, as future trading opened, S&P 500 futures pierced 2000 level and traded down to 1998.50.
Then the traders started buying aggressively running futures all the way up to 2018.50 early this morning. As a reference, futures closed at 2016.25.
As more money managers arrived at their desks, they started selling everything including gold, silver, and oil.
What Do Traders Know?
Traders are focused on the following:
- This is option expiration week.
- Indications are that option expiration is likely to the upside.
- Historically when option expiration is to the upside in November, Monday, Tuesday and Wednesdays are up-days.
- Market is over sold in the very, very short-term.
- Conditions are ripe for a short squeeze.
- The Fed may not raise interest rates in view of these attacks.
What Our Subscribers Should Focus On
ISIS is metastasizing like cancer. This is likely not the last ISIS attack. Risks are higher, it is time to invest defensively.
Our very, very short-term early stock market indicator is negative.
A Reminder
As our long time subscribers know well, that during the 2008 and early 2009 market crash, when stock market lost about 50%, subscribers to The Arora Report made money by the boat load. For long only investors, this remarkable performance was achieved by using inverse ETFs.
Our models do not expect a repeat of 2008. In the most likely worst case, there may be a garden variety bear market that typically occurred every 18 to 24 months prior to the recent six-year market run.
What To Do Now?
A year-end rally is likely. The plan at this time is to position for a year-end rally in a defensive manner. Further the plan is to position for a January Effect. A list of over 50 January Effect stocks with buy zones and position size will be published on ZYX Buy Change Alert in the near future.
It is important for investors to look ahead and not in the rear view mirror.
Consider only adding new positions per new posts since October 1st.
Consider continuing to hold existing positions. Based on individual risk preference, continue to hold 30-50% cash or hedges.
It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.
Gold futures are at $1086, silver futures are at $14.23, and oil futures are $40.80.
S&P 500 resistance levels are 2038, 2063, and 2100; support levels are 2000, 1962, and 1920.
DJIA futures are down 41 points.
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