WEEKLY MARKET DIGEST: MOMO CROWD BUYING STOCKS BUT SMART MONEY CAUTIOUS, GOLD BUYING ON DEFICIT $DIA $GLD $QQQ $SLV $SPY $TBF $TBT $USO

WEEKLY MARKET DIGEST: MOMO CROWD BUYING STOCKS BUT SMART MONEY CAUTIOUS, GOLD BUYING ON MORE DEFICIT $DIA $GLD $QQQ $SLV $SPY $TBF $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.

AGGRESSIVE BUYING BY THE MOMO BUT SMART MONEY CAUTIOUS, TAX REFORM, HOUSING STARTS

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

Stocks

Yesterday morning we shared with you that the market had shifted back to risk on mode.  The risk on mode carried on through the day with the momo crowd aggressively buying. The ‘smart money’ started the day with light buying but turned cautious at the end of the day.

This morning the momo crowd is aggressively buying in the early trade. The smart money is inactive.

Tax Reform

The House passed the tax reform.  Tax reform  has also made progress in the Senate.

Housing Starts

New housing data is strong.  Housing starts came at 1290K vs. 1198K consensus.

Building permits came at 1297K vs. 1243K consensus.

Gold

There is an uneasiness in some circles about higher deficits caused by the tax plan. This is leading to buying in gold.  The momo crowd is a buyer. The smart money is also lightly buying.

Oil

The momo crowd is aggressively buying oil.  Saudi oil minister is saying that the market will not rebalance by March as previously suggested.  This is bearish but at least for the time being the momo crowd is oblivious to the statement and continues to buy.

Technical Patterns

Chinese internet stocks are tracing a Continuation  Symmetrical Triangle.  This is bullish.  ETF of interest is KWEB.

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 range bound.

Gold futures are at $1282, silver futures are at $17.07, and oil futures are $56.19.

S&P 500 resistance level is 2615; support levels are 2550, 2500, and 2450.

DJIA futures are down 50  points

MARKETS SHIFT TO RISK ON STARTING WITH JAPAN ON TECHNICALS, HOUSE TO VOTE ON TAX REFORM

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

Markets Shift To Risk On Starting With Japan On Technicals

Markets are shifting to the risk on mode starting with technical.  Please scroll down to Technical Pattern section.

Risk on from Japan moved to Europe and is now getting carried to the United States adding fuel to the fire on good earnings from WMT, CSCO, NTAP and RH.

Stocks

The momo (momentum) crowd is aggressively buying stocks in the early trade. The ‘smart money’ is also lightly buying.

Gold, Bonds And Yen

Gold, bonds and yen are being sold as there is less perceived need for safe havens.

Of special note is that the momo crowd is lightly buying gold. The smart money is inactive in gold.

Tax Reform Voting In The House

The House is likely to vote on the tax reform bill today.  The momo crowd is likely to buy on the news if their recent pattern holds true.  It is not clear what the smart money will do on the news.

Jobless Claims

Initial Jobless Claims came at 249K vs. 234K consensus. This is a leading indicator and holds heavy weight in our models.  Due to volatility we use a moving average and are not concerned about the rise this week.

Oil

EIA inventory data was bearish for oil.  However the momo crowd continues to buy the dips.

Technical Patterns

Japanese stocks have traced an Exhaustion Bar.  This is bullish. ETFs of interest are EWJ and DXJ.

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.

Dollar is slightly stronger.

Interest rates are ticking up.

Gold futures are at $1280, silver futures are at $17.09, and oil futures are $55.19.

S&P 500 resistance level is 2615; support levels are 2550, 2500 and 2450.

DJIA futures are up 78 points.

SOME FROTH BEGINNING TO COME OFF AS MARKETS SHIFT TO RISK OFF MODE AND THAT IS GOOD, CPI AND RETAIL SALES

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

Froth

Lately markets, especially stocks and commodities, have become somewhat frothy.  As we have been sharing with you in the Morning Capsules, the momo (momentum) crowd typically has been an aggressive buyer without regard to the risk.

We have been sharing with you that lately the ‘smart money’ often has been lightly selling.  This morning there is more selling by the smart money but the momo crowd is still buying.

Selling by the smart money is beginning to take some froth off.

Risk Off Supports Gold, Bonds And Yen

As the smart money sells stocks, markets shift into the risk off mode.  In the risk off mode, investors buy the safe havens of gold, bonds and yen.  This is exactly what is happening today.

The dollar is being sold. Since gold moves inverse to the dollar, this is helping gold.

Please note that gold is now approaching a resistance zone.  If gold can overcome the resistance right here, $1300 will be a magnet.

Complacency

Due to the behavior of the momo crowd, complacency has been seeping into the market.  If selling by the smart money leads to a correction, it will reduce complacency.  High complacency often leads to strong down moves.  For this reason reduced complacency will be good for long-term investors.

CPI

Core Consumer Price Index  (CPI) came at 0.2% vs. 0.2% consensus.

Yesterday we shared with you that inflation at the producer level is running hotter but not being transferred to the consumer level. This new data shows that inflation at the produce level is still not be transferred to the consumer.

Retail Sales

The U. S. economy is 70% driven by consumers.  Therefore retail sales are important for investors.

Retail Sales Ex-auto came at 0.1% vs. 0.2% consensus. We exclude autos because auto sales are very volatile and make predictions hard.  Please see click here to see how we filter out the noise in our algorithms.

Oil

In yesterday’s Morning Capsule we shared with you about IEA report.  There was a delayed reaction to the report in oil causing oil to fall.  API inventory data was bearish causing further selling.  EIA data will be released at 10:30 am ET.  It is likely to be a market mover.

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.

Euro is especially strong.

Interest rates are moving down and bonds are moving up.

Gold futures are at $1287, silver futures are at $17.20, and oil futures are $55.23.

S&P 500 resistance level is 2615; support levels are 2550, 2500, and 2450.

DJIA futures are down 113 points.

PRODUCER INFLATION RUNS HOTTER, U. S. OIL PRODUCTION TO ROCKET

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

Producer Inflation Runs Hotter

Core Producer Price Index (PPI) came at 0.4% vs. 0.2% consensus.  Core PPI carries a heavy weight in our timing models because historically inflation shows up at the producer level before it shows up at the consumer level.  Lately inflation at producer level has not been transferred to the consumer level.  In the long run this is not sustainable.

Stocks

Some selling from Asia has carried to Europe and is now showing up in the United States.  The momo crowd is buying in the early trade.  The  ‘smart money’ is lightly selling.

Gold

Gold took a small hit on hotter inflation data.  The fear here is that hotter inflation will prompt the Fed to raise interest rates.  Gold does not like higher interest rates.

The momo crowd is selling gold as has been their pattern to sell on higher inflation data.  The smart money is inactive.

Long-term investors may want to note that higher inflation is good for gold.

U. S. Oil Output To Rocket

IEA in a new report says that U. S. oil output will rocket.  IEA also says that global demand for oil will not be as robust due to higher prices.  This is in direct contradiction to projections from OPEC.  There is light selling by the smart money in early trade.  The momo crowd, oblivious to the new report, is buying.

Technical Patterns

Italian shares are tracing a  Head and Shoulders pattern.  This is bearish.  ETF of interest is .

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 up and bonds are ticking down.

The dollar is slightly weaker.

Gold futures are at $1272, silver futures are at $16.94, and oil futures are $56.5.

S&P 500 resistance level is 2615; support levels are 2550, 2500, and 2450.

DJIA futures are down 56 points.

TREND INTACT BUT JITTERS OVER THE $1.5 TRILLION PROBLEM, WRANGLING OVER TAXES, OPEC MEETING

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

Trend Intact But Jitters Over The $1.5 Trillion Problem

The stock market is becoming jittery. The real reason behind the jitters is the $1.5 trillion problem. The ‘smart money’ has known about the problem and has acted accordingly but the momo (momentum) crowd has been oblivious.  We described the $1.5 trillion problem in the Morning Capsule on Friday.

The $1.5 Trillion Problem

Traditionally Republicans have been against big deficits.  Now things have changed. The zeal to cut taxes has overtaken the concern for deficits.  If the tax bill were to raise deficits more than $1.5 trillion over a 10-year period, it will need 60 votes to pass in the Senate.  Since Republicans do not have 60 votes, they have to keep deficit under $1.5 trillion.  This is causing problems for all the tax cuts Republicans want.

Weekly Chart

Please click here for the weekly chart of S&P 500 ETF (SPY).

From the weekly chart, please note the following:

  • The long-term trend as shown on the chart by the trend line is intact but extended. Extended trends are vulnerable and pose more risk.
  • There is no significant change in volume at this time. A significant change in volume can often indicate a change in the trend.
  • RSI is overbought. This indicates that the market is vulnerable to a short-term correction.

Wrangling Over Taxes

At The Arora Report, our expectation is that the House will pass its bill that includes deductions for state property taxes. The Senate bill does not allow deductions for these taxes. The final tax reform is likely to be hammered out in the conference after the Senate passes a different bill, assuming there are enough votes in the Senate for the present bill. Getting enough votes in the Senate may be a challenge.

The Main Market Driver

The market is likely to be driven by the headlines and rumors regarding the tax reform.

OPEC Meeting

OPEC will meet on November 30.  Expectation is that there will be an extension of oil production cuts.  Oil is seeing light selling.

Gold

Gold is being supported on jitters about the U. S. stock market. The momo crowd is buying.  The smart money is inactive.

Sterling Falls

In the U. K., 40 Conservative parliament members have indicated no confidence in Prime Minister May.  Sterling is falling but weakness in sterling is supporting British stocks.

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.

Bonds are ticking up and interest rates are ticking down.

Currencies other than sterling are range bound.

Gold futures are at $1277, silver futures are at $16.89, and oil futures are $56.83.

S&P 500 resistance level is 2615; support levels are 2550, 2500 and 2450.

DJIA futures are down 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 19% – 29% and short to medium-term hedges of  15% – 25% and very short term hedges of 15%.

 

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