WEEKLY MARKET DIGEST: PAY ATTENTION: FED CHAIR SAID SIGNIFICANT DOWNSIDE RISKS AHEAD $DIA $GLD $QQQ $SLV $SPY $TBT $USO

WEEKLY MARKET DIGEST: PAY ATTENTION: FED CHAIR SAID SIGNIFICANT DOWNSIDE RISKS AHEAD $DIA $GLD $QQQ $SLV $SPY $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.

POOR RETAIL SALES, WILL TRUMP BOW TO CHINA TO SAVE APPLE, QUALCOMM, CISCO AND BOEING?

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

Poor Retail Sales

Due to the shutdown, retail sales were expected to be poor.  However the reality is turning out to be much worse than the expectations.

April Retail Sales Ex-auto came at -17.2% vs. -8.2% consensus.  In our analysis, we exclude auto because the data on auto is very volatile and hinders projections.

The headline number came at -16.4% vs. -11.9% consensus.

New China Problem

At a time when there is a debate about the stock market underestimating the risks from coronavirus, China risk is reemerging. The United States has long contended that the big Chinese telecommunication equipment maker Huawei Technologies is a risk to the national security. It has been contended that the Chinese can spy on the U. S. and other countries through backdoors built in Huawei equipment.

There is a report that the U. S. is amending an export rule to block sale of certain semiconductors to Huawei. This is in addition to the prior restrictions on export of U. S. technology to Huawei.

There is a swift response from China in a tweet, Hu Xijin, the influential editor of Global Times with close ties to the Chinese government, said that China may declare Apple (AAPL), Qualcomm (QCOM) and Cisco (CSCO) as unreliable entities and stop buying planes from Boeing (BA). Will Trump bow to China to save these companies and the U. S. stock market? Let’s examine with the help of a chart.

The Chart

Please click here for an annotated chart of Apple, Qualcomm, Cisco and Boeing.

Note the following:

  • Dow Jones Industrial Average (DJIA) dropped after the report of restrictions on semiconductor sales to Huawei. The stock market took another leg down after the tweet from Hu Xijin.
  • The chart shows that after coronavirus related dip, Apple stock approached the prior highs.
  • The chart shows that Qualcomm and Cisco rallied from the lows but nowhere near their prior highs.
  • The chart shows a big drop in Boeing stock. Boeing had issues prior to the coronavirus and now Boeing’s customers have more planes than they need for the time being.
  • In the prior trade war between the U. S. and China, Tim Cook was successful in keeping both President Trump and Chinese government happy. The big risk is that Tim Cook may not be able to pull off the remarkable feat again.
  • A lot of money is tied to stock market benchmark index S&P 500 (SPX). Apple carries a heavy weight in the index. If Apple stock is hit, more than the other three stocks named in the tweet, the stock market will be impacted not only because of the heavy weight of Apple in the index but also because it will generate negative sentiment.
  • Stock market investors have been hiding in big five tech stocks of Apple, Amazon (AMZN), Facebook (FB), Alphabet (GOOG) (GOOGL), Microsoft (MSFT). Amazon, Google and Facebook do not do any material business in China. If tensions rise the impact on Microsoft may not be that great; it will be interesting if the stock market makes the differentiation and runs up these stocks even further.

What Does It All Mean?

This stock market is controlled by the momo (momentum) crowd. For the momo crowd it is all about momentum. In contrast, for the prudent investors it is about risks and rewards. Risks in this stock market are significantly higher than generally believed. On the other hand, good news on antivirals or vaccines can cause a massive short squeeze potentially causing the stock market to go to new highs.

Under these circumstances, investors should neither be bears nor bulls. Investors should follow the analytical framework of protection bands and stay nimble based on the new incoming data.

Momo Crowd And Smart Money In Stocks

The momo crowd is acting like a yo-yo in the early trade.  Smart money is lightly selling.

Gold

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

For longer term, please see gold and silver ratings.

Oil

The momo crowd is extremely aggressively buying oil in the early trade. Smart money is inactive.

For longer term, please see oil ratings.

Marijuana

The momo crowd is buying marijuana stocks after ACB earnings. 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 negative.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down and bonds are ticking up.

The dollar is weaker.

Gold futures are at $1751, silver futures are at $16.91, and oil futures are $28.57.

S&P 500 futures resistance levels are 2870, 2924 and 3000: support levels are 2785, 2714 and  2653.

DJIA futures are down 246 points

TRUMP IS HALF RIGHT ABOUT RICH GUYS BETTING AGAINST THE STOCK MARKET—HERE IS THE OTHER HALF

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

Jobless Claims

Weekly Jobless Claims came at 2.981 million vs. 2.5 million consensus.

Rich Guys Short Selling

Trump says that rich guys may be betting against the stock market and they profit from the stock market going down. Trump’s tweet was in reaction to many accomplished stock market investors speaking cautiously about the stock market rally.

Trump is half right. Let’s explore with the help of a chart.

The Chart

Please click here for an annotated chart of Dow Jones Industrial Average ETF (DIA) which represents the popular stock market index Dow Jones Industrial Average (DJIA).

Note the following:

  • The chart shows that the stock market opened below the resistance zone in May.
  • The chart shows that after repeatedly bumping against the resistance zone, the stock market failed to make a deeper penetration into the resistance zone.
  • The chart shows that 65% of the rally was due to short squeeze. We called it in advance that this force might exhaust itself the third week of April. That call has proven spot on. It does not mean that a new short squeeze cannot start anytime. 
  • The foregoing is a good set up for short selling.
  • The good setup for short selling is not a secret exclusive to the rich guys.
  • Some investors put a lot of faith in 13F filings with the SEC by the so called rich guys. These filings are supposed to disclose their positions.
  • The faith many investors put in 13F filings is misplaced. First these filings are delayed. Second there are many loopholes that allow the rich guys to obfuscate their true holdings.

Trump Is Half Right

Trump is half right in that the rich guys often talk their book. In my over 30 years in the markets, my cumulative conclusion is that it is not uncommon for large investors to say one thing and do another to benefit their positions. Trump is right in this respect. However, at The Arora Report, we are not seeing evidence of en masse wholesale short selling at this time. The reason is that everybody is afraid of the Fed. It is just common sense to limit the position sizes when it comes to short selling at this time.

What Does It All Mean?

The best clue for investors who do not have access to sophisticated algorithms and a ton of experience is to watch the five big tech stocks of Amazon (AMZN), Apple (AAPL), Facebook (FB), Alphabet (GOOG) (GOOGL) and Microsoft (MSFT).

Momo Crowd And Smart Money In Stocks

The momo crowd  was aggressively buying stocks earlier in the morning.  When the momentum reversed, the momo crowd started selling.  Smart money is inactive.

Gold

The momo crowd is buying gold in the early trade. Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is buying oil in the early trade. Smart money is inactive.

For longer term, please see oil ratings.

Marijuana

The momo crowd is selling marijuana stocks in the early trade. 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 negative but the market can easily swing either way.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down and bonds are ticking.

The dollar is stronger.

Gold futures are at $1722, silver futures are at $15.69, and oil futures are $25.94.

S&P 500 futures resistance levels are  2870, 2924 and 3000: support levels are 2785, 2714 and 2653.

DJIA futures are down 273 points

POWELL SPEECH: “PATH AHEAD IS BOTH HIGHLY UNCERTAIN AND SUBJECT TO SIGNIFICANT DOWN SIDE RISKS”

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

Powell Speech

As we write this post, Fed Chair Powell is speaking.  He said, “The path ahead is both highly uncertain and subject to significant down side risks.”

The most significant statement  from Powell is that the passage of time can turn liquidity problems into solvency problems. In plain English, this is echoing what we wrote in a recent Afternoon Capsule – a flood of bankruptcies are ahead.

Does the momo crowd care about the warning from Powell?  Apparently they are not listening. As Powell speaks, the momo crowd is busy buying to take advantage of the shallow dip in the stock market.  They believe that the only way for the market is up and every tiny dip is a buying opportunity.  Let us see how long this belief lasts.

PPI

April Core PPI came at -0.3% vs. -0.2% consensus.

The headline PPI came at -1.3% vs. -0.5%. consensus.

In plain English, this means that for the time being there is no inflation.

Momo Crowd And Smart Money In Stocks

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

Gold

The momo crowd is buying gold in the early trade.  Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

API inventories came at a build of 7.6M barrels vs. a consensus of a build of 4.15M barrels. This data is bearish for oil.

What does the momo crowd do in the face of this bearish data? They are buying the momentum from yesterday.

Smart money is inactive.

For longer term, please see oil ratings.

Marijuana

The momo crowd is selling marijuana stocks in the early trade.  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 negative.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down and bonds are ticking up.

The dollar is  weaker.

Gold futures are at $1724, silver futures are at $15.82, and oil futures are $25.87.

S&P 500 futures resistance levels are  2870, 2924 and 3000: support levels are  2785, 2714 and 2653 .

DJIA futures are down 20 points

FED TO START BUYING BOND ETFS TODAY, INFLATION INLINE

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

Fed ETF Buying

Starting today the Fed plans to buy bond ETFs.  The Fed will be buying mostly investment grade bonds but also some high yield bonds.

Inflation

April CPI came at -0.8% vs. -0.8% consensus.

April Core CPI came at -0.4% vs. -0.2% consensus.

In plain English, this means that inflation is falling as expected.  Of course, investors need to be careful about inflation in the future due to money printing and borrowing. 

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade.  Smart money is inactive.

Gold

The momo crowd is buying gold in the early trade. Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is buying oil in the early trade.  Smart money is inactive.

For longer term, please see oil ratings.

Marijuana

The momo crowd is buying marijuana stocks in the early trade.  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 negative but expect the market to open higher.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking up and bonds are ticking down.

The dollar is weaker.

Gold futures are at $1704, silver futures are at $15.72, and oil futures are $25.46.

S&P 500 futures resistance level is 3000: support levels are  2924, 2870 and  2785.

DJIA futures are up 106  points.

$10,000 PER MONTH FREE CHECK FOR FAMILIES PROPOSED – THE VICIOUS SPIRAL OF POLITICIANS AND INVESTORS GONE BERSERK

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

Politicians And Investors Gone Berserk

Prudent stock market investors ought to consider bringing sophistication to their investing and trading. These stock market conditions call for prudent investors to abandon the simplistic binary notion of being either bullish or bearish. This is especially important as a vicious and dangerous spiral is forming between the stock market investors and politicians gone berserk. There is wisdom to the old saying: Watch what they do not what they say. Many investors are buying stocks because they believe that the Fed and the government have their backs. It is implicit in the investor’s behavior we all have witnessed during the recent stock market rally that many investors believe the old rules of risk and reward have been suspended. With the government borrowing heavily and the Fed aggressively printing money, there can be only upside to the stock market and no downside – so goes the prevailing belief.

Is This a Virtuous Or A Vicious Spiral?

Politicians look at the rising stock market and infer that there is no downside to the massive borrowing and money printing. After all, the stock market is supposed to know it all. If there was any risk to massive borrowing and money printing, the stock market would be going down not up.

There are many stimulus proposals from both Democrat and Republican politicians. An example is the Monthly Economic Crisis Support Act offered by Senators Bernie Sanders, Kamala Harris and Ed Markey. The act would send $10,000 a month to an American family with two parents and three children – free with very few strings attached. Politicians have the incentive to make such potential payments tax free. How many couples have jobs that pay them $10,000 a month after tax?

The self-feeding spiral of politician’s borrowing and money printing and investors buying stocks is right in front of our eyes. While many will send me hate mail for pointing out this spiral that is making money for everyone, I believe that this is not a virtuous spiral but a vicious dangerous spiral in the long term. Of course this spiral provides many money making opportunities in the short to medium term. Let’s explore with the help of two charts.

Two Charts

Please click here for an annotated chart of Dow Jones Industrial Average ETF (DIA) which represents the popular stock market index Dow Jones Industrial Average (DJIA).

Please click here for an annotated chart of S&P 500 ETF (SPY) the represents the benchmark stock market index S&P 500 (SPX).

Note the following:

  • The first chart gives stock market investors a long term perspective and should always be the starting point of any analysis.
  • The second chart gives investors a short term perspective.
  • The first chart shows that so far stock market has not been able to break through the resistance zone after bouncing from the top band of the ‘mother of support zones’.
  • The second chart shows RSI divergence. In plain English, this means that as the stock market has moved higher, RSI has moved lower. This indicates loss of internal momentum.
  • Investors have been hiding in five big stocks: Amazon (AMZN), Apple (AAPL), Facebook (FB), Alphabet (GOOG) (GOOGL) and Microsoft (MSFT). Investors may want to carefully watch how these five stocks react to news. For example, as of this writing, there is a rumor that Amazon may buy AMC Entertainment (AMC) causing AMC stock to jump 79%.
  • Investors should pay attention to the potential of negative interest rates in the United States.

What Does It All Mean?

Based on my over 30 years’ experience in the markets, I suggest that stock market investors neither be bearish nor bullish, but evaluate the data as they come. Investors ought to follow the framework of protection bands and strategically buy when stock and ETFs dip into buy zones. In addition, investors who are trading-oriented should consider taking advantage of short-term trading opportunities when the setups are right.

Momo Crowd And Smart Money In Stocks

The momo crowd was aggressively buying stocks yesterday evening and earlier in the morning when the smart money slammed them with selling.  As of this writing, the momo crowd is still buying stocks. Smart money has stopped selling.

Gold

The momo crowd is buying gold in the early trade. Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is buying oil stocks in the early trade.  Smart money is inactive.

For longer term, please see oil ratings.

Marijuana

The momo crowd is buying marijuana stocks in the early trade. Smart money is inactive.

Technical Patterns

Silver is tracing a shooting star. This is bearish. ETF of interest is SLV,

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.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking up and bonds are ticking down.

The dollar is stronger.

Gold futures are at $1709, silver futures are at $15.74, and oil futures are $24.71.

S&P 500 futures resistance levels are 2924 and 3000: support levels are 2870, 2785 and 2714.

DJIA futures are down 249 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 34% – 44% and short to medium-term hedges of  3% – 15% and short term hedges of 8% – 20%.

 

A knowledgeable investor would have turned $100,000 into over $1,000,000 with the help from The Arora Report. NOW YOU TOO CAN ALSO SPECTACULARLY SUCCEED AT MEETING YOUR GOALS WITH THE HELP OF THE ARORA REPORT. You are receiving less than 2% of the content from our paid services. …TO RECEIVE REMAINING 98% INCLUDING MANY ATTRACTIVE INVESTMENT OPPORTUNITIES, TAKE A FREE TRIAL TO PAID SERVICES.

Please click here to take advantage of a FREE  30 day trial.

Check out our enviable performance in both bull and bear markets.

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