FOMC minutes show that the Fed has become impotent to normalize monetary policy.  In our analysis, the Fed becoming impotent significantly raises risks for investors.  However, this is a lonely view at this time.

Investors celebrated Fed’s impotency by buying everything other than the dollar.  Even beaten down currencies of Malaysia and Indonesia are rocketing.

In our analysis, the investors are looking in the rear view mirror.  After all if the Fed is unable to raise interest rates, markets should go up as they have done over the last several years, so goes the reasoning. The reality is that the world economy is at a very different place now compared to yesteryears.  The markets are also at a very different place compared to yesteryears.

Zinc prices jumped 8% to $1815 per ton as Glencore cut its zinc production by 500K tons per year.  Zinc is widely used to make steel rust proof.  Copper is running up in sympathy now at $5300 a ton.

Alcoa kicked off the earnings season with a big miss vs. already reduced expectations.  Alcoa earnings report provide several data points showing that  there is significant weakness in the aluminum market.  Alcoa stock fell.  How are commodity investors responding to weaker than expected aluminum demand and higher than expected production? They promptly ran up aluminum by 3% to $1600.

Gold and silver are running.

Interest rates are near the upper end of their recent range.

Oil crossed $50 in a massive short squeeze.

Our very, very short-term early stock market indicator is positive but can quickly reverse.

What To Do Now?

It is conceivable that FOMC minutes may provide some clarity that we are seeking.  If such clarity becomes available, our plan will change and you will immediately see a post on the Real Time Feed.  If there is no clarity, the following plan will stay in force.

For the reason explained above, it is prudent to keep 35-50% cash until the situation becomes clearer as earnings will start pouring in next week.  If earnings trend turns out to be better than the consensus, then we will start deploying the cash. On the other hand,  if the earnings trend  turns out to be worse than the consensus, the plan will be to raise more cash for long only investors and aggressive shorting for those who short.

It is the quality of your investing and not the quantity of your trades that generates wealth.

Gold futures are at $1155, silver futures are at $15.91, and oil futures are $50.06.

S&P 500 resistance levels are 2017, 2038, and 2063; support levels are 1962, 1920, and 1860.

DJIA futures are up 15 points.

After Friday October 2nd ugly employment report, there  is new divergent data this morning.  Weekly Unemployment Claims came at  263K vs. 275K  consensus.  This is the lowest level since July.

FOMC minutes will be released this afternoon.  If these minutes result in an action for investors, you will see a post on the Real Time Feed.  If no action is required, there will not be a post.

Chinese stock market opened after a week-long holiday and was up about 3%.

Oil inventories released yesterday by DOE showed bigger build than expectations.  Oil fell on the news.  However, oil is beginning to move up again on the news that Russia has started using its navy to bomb rebels in Syria.

The strong unemployment report combined with over-bought conditions in the very, very short-term are putting pressure on gold.  Silver is seeing heavy selling.

Interest rates are range bound.

Our very, very short-term early stock market indicator is negative however it can quickly return to positive.  The reason is that there are many shorts in the market who were expecting China to open down.  Now that China has opened up, such shorts may be forced to cover. 

What To Do Now?

It is conceivable that FOMC minutes may provide some clarity that we are seeking.  If such clarity becomes available, our plan will change and you will immediately see a post on the Real Time Feed.  If there is no clarity, the following plan will stay in force.

For the reason explained above, it is prudent to keep 35-50% cash until the situation becomes clearer as earnings will start pouring in next week.  If earnings trend turns out to be better than the consensus, then we will start deploying the cash. On the other hand,  if the earnings trend  turns out to be worse than the consensus, the plan will be to raise more cash for long only investors and aggressive shorting for those who short.

Gold futures are at $1138, silver futures are at $15.54, and oil futures are $48.24.

S&P 500 resistance levels are 2000, 2017, and 2038; support levels are 1962, 1920, and 1860.

DJIA futures are down 39 points.

China, until recently a big buyer of U. S. debt, has stepped up dumping U. S. Treasuries and U. S. dollar.

China is not alone.  Russia, Taiwan, Brazil, and Norway are also dumping U. S. Treasuries.

The yields on U. S. Treasuries has not risen because India has stepped up to buy U. S. Treasuries.  More importantly Smart Money continues to buy U. S. Treasuries since Friday and sell U. S. stocks into the rally. 

Global ‘risk on’ rally continues without participation from the Smart Money.

In our analysis, foreign central banks are likely to keep on dumping U. S. Treasuries.  If Smart Money stops buying U. S. Treasuries and moves into stocks, Treasury yields will rise potentially quashing any stock market rally.

From a macro perspective, U. S. stock market is in a no-win situation unless upcoming earnings turn out to be better than the consensus.

IMF reduces its global growth forecast to 3.1% from 3.3%.  IMF now calculates a 50% chance of a global recession in 2016.  Please note that historically a bear market starts 3.5 months on the average before the onset of a recession.

Gold and oil are continuing their rallies.

Interest rates are range bound.

Our very, very short-term early stock market indicator is positive but can quickly turn negative. Some traditional technicals have turned positive and may prompt more buying by pure technical traders. Unless such traders get lucky with good earnings, they risk becoming fodder for a bull trap.  A bull trap is an inaccurate technical signal.

What To Do Now?

For the reason explained above, it is prudent to keep 35-50% cash until the situation becomes clearer as earnings will start pouring in next week.  If earnings trend turns out to be better than the consensus, then we will start deploying the cash. On the other hand,  if the earnings trend  turns out to be worse than the consensus, the plan will be to raise more cash for long only investors and aggressive shorting for those who short.

Gold futures are at $1150, silver futures are at $15.93, and oil futures are $49.43.

S&P 500 resistance levels are 2000, 2017, and 2038; support levels are 1962, 1920, and 1860.

DJIA futures are up 104 points.

After weak data point from the U. S. on October 2nd, there is now a new important weak data point from Germany.  German factory orders fell 1.8% vs. consensus of 0.5% rise.

Lately the U. S., Germany, U. K., and India have been four economic growth leaders in the world while the rest of the world growth has been languishing. Now we are seeing weak data from all these four economies.

Markets are running up as talk of QE4 takes hold.

Based on the present data, in our analysis, QE4 is unrealistic.

Due to over-optimism by investors, at this time the risk is very high.

Commodities, including gold and oil, are running up on talk of QE4.

Interest rates are range bound.

Our very, very short-term early stock market indicator is negative.

What To Do Now?

At this time investors may consider putting return of capital over return on capital.  In simpler words, be on the defensive.

Consider using the run up to raise cash.  Investors may consider holding 35-50% cash.

In view of positive market sentiment, it is also important to be on the defensive when initiating new short positions.

Gold futures are at $1143, silver futures are at $15.75, and oil futures are $46.68.

S&P 500 resistance levels are 2000, 2017, and 2038; support levels are 1962, 1920, and 1860.

DJIA futures are up 8 points.

A comment from Russia that it is ready to talk with other oil producers is running up oil.

In our analysis, Russian bombing in Syria escalates its proxy war with Saudi Arabia. In all probability, Russian comment will remain just a talk.

If oil prices run higher, many emerging markets will be hurt.

Lately, when oil runs up, the stock market also runs up.  Today is no different.  Further, investors are celebrating bad employment data.  The talk of QE4 is wide-spread among trading circles.

In our analysis, the talk of QE4 is misplaced.  Probability is slim that the Fed will start QE4 in the future.  Also running up stock market on bad employment data is misplaced.  After six years of zero interest rates, if the strongest economy in the world, “U. S.” cannot withstand 0.25% rate increase, it means that there is a serious problem.

At this time the risk is very high.

Gold and silver are running with oil.

Interest rates are ticking up as the money comes out of the safety of bonds into stocks and commodities.

Our very, very short-term early stock market indicator is positive.

What To Do Now?

At this time investors may consider putting return of capital over return on capital.  In simpler words, be on the defensive.

Consider using the run up to raise cash.  Investors may consider holding 35-50% cash.

In view of positive market sentiment, it is also important to be on the defensive when initiating new short positions.

Gold futures are at $1135, silver futures are at $15.49, and oil futures are $46.61.

S&P 500 resistance levels are 1962, 2000, and 2017; support levels are 1920, 1860, and 1838.

DJIA futures are up 116 points.