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.
DOW 32,000 BUT BE WARNED OF A BIG FLAW IN BULLS’ LOGIC ON TRUMP XI MEETING
To gain an edge, this is what you need to know today.
Bulls Excited About Trump Xi Meeting
Stock market bulls are excited about Presidents Trump and Xi meeting. Dow Jones Industrial Average chart of the stock market projects Dow to 32,000. However, prudent investors ought to be warned about a big flaw in stock market bull’s logic that nobody is talking about. Let’s explore with the help of a chart.
Please click here for an annotated chart of Dow Junes Industrial Average (DJIA) ETF (DIA) chart. For the sake of complete transparency, this is the same chart that was previously published without any changes. Similar conclusions can be drawn from the charts of S&P 500 ETF (SPY) and Nasdaq 100 ETF (QQQ). Please note the following:
- The stock market often exhibits symmetry.
- The chart shows first stock market target of Dow 29,000.
- The chart shows the second stock market target of 32,000.
- The chart shows the Arora buy signal.
- Overall, the chart pattern is highly bullish.
Long Standing Target
When the Dow Jones Industrial Average was at 16,000 points, I was among few who publicly called for the index to hit 30,000. Subsequently, I have repeated the call several times.
Bullish Scenario
Stock market bulls’ bullish scenario consists of the following projections:
- Presidents Trump and Xi will either reach a deal or at a minimum announce a truce.
- The economy will continue to grow.
- Earnings will continue to grow.
- Large-cap technology stocks such as Apple (AAPL), Facebook (FB), Amazon (AMZN), Google (GOOG) (GOOGL) and Microsoft (MSFT) will continue to perform.
- The Fed will cut the interest rate by at least 75 basis points in 2019.
- The Fed will cut interest rates further in 2020.
The Big Flaw
Let us start out with Arora’s Second Law of Investing: Nobody knows with certainty what is going to happen next. Stock market bulls are painting a picture perfect scenario. However there is a big flaw in this scenario. The flaw is the stock market bulls’ assumption that the Fed will aggressively cut rates in the face of removal of a trade war risk, growing economy and growing company earnings. This flies in the face of common sense.
Why would the Fed embark on such a long term disastrous course to further inflate the asset bubble including the stock market, bonds and real estate? Stock market bulls have an answer. The Fed will do so to take out an insurance policy against a natural short term economic decline after a 10 year long expansion and to prevent some air leaking out of the stock market, bond and real estate bubbles.
My answer is worth repeating what I have written before. The debt bubble is getting bigger and will eventually burst. Many investors will get badly hurt. Think of it as a party where almost everybody is drunk and all the drunken people claim that nobody is drunk. I would suggest to investors that they enjoy the party but be aware of the risks ahead.
At The Arora Report we translate this into positions to buy, sell and hold through the ZYX Asset Allocation Model with 10 inputs. (Please click here to see the 10 inputs.) The model produced a gain in 2008 of 48.36%, the last time the bubble burst. And the model gave an aggressive buy signal in March 2009 and has stayed bullish since then. But at times, like now, we’ve had defensive measures such as proper allocations to cash and hedges. Moreover, portfolio selection is important to control risks.
Personal Income And Spending
Personal Income came at 0.5% vs. 0.3% consensus.
Personal Spending came at 0.4% vs. 0.4% consensus.
Momo Crowd And Smart Money In Stocks
The momo crowd is aggressively 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.
Oil
The momo crowd is buying oil in the early trade. Smart money is inactive.
Marijuana
The momo crowd is buying marijuana stocks in the early trade. Smart money is inactive.
Technical Patterns
Indian stocks are tracing a bottoming triangle. This is bullish. ETF of interest is EPI.
Turkish stocks are tracing a bottoming triangle. This is bullish. ETF of interest is TUR.
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 expect the market to open significantly higher.
Interest rates are ticking up and bonds are ticking down.
The dollar is slightly weaker.
Gold futures are at $1416, silver futures are at $15.28, and oil futures are $59.57.
S&P 500 resistance levels are 2950, 3020 and 3050; support levels are 2925, 2918 and 2860.
DJIA futures are up 82 points.
QUARTER END WINDOW DRESSING MUTED DUE TO TRUMP XI MEETING, GDP
To gain an edge, this is what you need to know today.
Window Dressing Muted
The end of the quarter is approaching. Normally at this time, window dressing is done by many money managers. In window dressing, money managers buy the strong stocks and sell the weak stocks and thus exaggerate the moves. The reason some money managers do this is to show their clients in the quarter end statement that they were holding strong stocks.
We are seeing some of it but it is muted. The reason is the upcoming meeting between Presidents Trump and Xi. Most prudent managers do not want to make big moves until the results of the meeting are known.
Review Your Portfolio
Investors may consider reviewing their portfolio ahead of the Trump Xi meeting. The meeting has the potential to run the market much higher if a deal is struck or much lower if talks break down. One scenario is that a lot of good words are said and talks resume but no decision is made; in such a case the market may muddle along and the direction may depend on the Fed.
GDP
GDP -Third Estimate came at 3.1% vs. 3.1% consensus.
Initial Claims
Initial Jobless Claims came at 227K vs. 219K consensus.
Momo Crowd And Smart Money In Stocks
The momo crowd is acting like a yo-yo this morning. Smart money is inactive.
Gold
The momo crowd is acting like a yo-yo in gold. Smart money is inactive.
Oil
EIA data was bullish for oil.
The momo crowd is acting like a yo-yo in oil. Smart money is inactive.
Marijuana
There is no discernable momo crowd or smart money activity in marijuana.
Please note that potential for short squeezes has become less.
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.
Interest rates are ticking down and bonds are ticking up.
Currencies are range bound.
Gold futures are at $1405, silver futures are at $15.26, and oil futures are $59.18.
S&P 500 resistance levels are 2950, 3020 and 3050; support levels are 2918, 2860 and 2840.
DJIA futures are up 14 points.
POWELL SLIGHTLY HAWKISH, MNUCHIN OPTIMISTIC, LARGE CRUDE DRAW
To gain an edge, this is what you need to know today.
Powell
The Fed Chair Powell was slightly hawkish in his speech compared to the consensus. This caused the stock market to fall.
Mnuchin
Mnuchin is out making very optimistic comments about trade talks with China. The market is running up on these comments recouping much of what it lost on Powell’s comments.
Durable Goods
Durable Goods Ex-transport came at 0.3% vs. 0.1% consensus.
Momo Crowd And Smart Money In Stocks
The momo crowd is aggressively buying stocks in the early trade. Smart money is inactive.
Gold
Gold fell first on Powell’s hawkish comments and then on Mnuchin’s optimism.
In our gold post we wrote:
For very short-term trades, the top band of the resistance zone shown on the weekly chart is a potential target.
This call has now proven spot on.
The momo crowd is acting like a yo-yo in gold. Smart money is inactive.
Oil
API reported a crude oil inventory draw of 7.55 million barrels vs. 2.9 million barrel consensus. This is causing optimism in oil.
The momo crowd is aggressively buying oil. Smart money is inactive.
Marijuana
The momo crowd is all over the place on different marijuana stocks. Smart money is inactive.
Technical Patterns
Lithium stocks are tracing a bearish triangle. This is bearish. ETF of interest is LIT.
Taiwan stocks are tracing an island top. This is bearish. ETF of interest is EWT. However be careful trading Taiwan because it may move based on the result of trade talks.
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, expect the market to open higher and move based on news and rumors.
Interest rates are ticking up and bonds are ticking down.
The dollar is stronger.
Gold futures are at $1414, silver futures are at $15.39, and oil futures are $58.99.
S&P 500 resistance levels are 2950, 3020 and 3050; support levels are 2925, 2918 and 2860.
DJIA futures are up 73 points.
MORNING CAPSULE: POWELL SPEECH AHEAD, MARKETS WAIT FOR TRUMP XI MEETING
To gain an edge, this is what you need to know today.
Powell Speech
Fed Chairman Powell will speak in New York at 1:00 pm. His speech and the follow up Q&A have the potential to move the markets. He will likely be asked about Trump’s attack on him by calling the Fed “a stubborn child” by not cutting rates.
Trump Xi Meeting
The markets are anxiously waiting for Trump Xi meeting later in the week.
Home Prices
Home Price Index came at 2.5% vs. 2.5% consensus.
Momo Crowd And Smart Money In Stocks
The momo crowd is buying stocks in the early trade. Smart money is inactive.
Gold
Gold continues to move higher on a short squeeze. The momo crowd is buying gold. Smart money is inactive.
Oil
Oil is supported by new U. S. sanctions against Iran. The momo crowd is buying oil. Smart money is inactive.
Marijuana
The momo crowd is 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 neutral.
Interest rates are ticking down and bonds are ticking up.
Currencies are range bound.
Gold futures are at $1428, silver futures are at $15.35, and oil futures are $57.92.
S&P 500 resistance levels are 2950, 3020 and 3050; support levels are 2925, 2918 and 2860.
DJIA futures are up 15 points.
ASSET CLASSES MOVING TOGETHER, POTENTIAL HIGH REWARD IN TURKEY
To gain an edge, this is what you need to know today.
Asset Classes Move Together
Academics teach diversification between asset classes to lower risk. In practice, it does not always work. A good example is right now. Most asset classes such as stocks, bonds, forex, gold, oil and real estate are moving together to the upside. Within stocks, the U. S., developed international markets, emerging markets and frontier markets are moving together. Since the move is to the upside, everybody is happy. This is the time for prudent investors to note that the same thing can happen on the down side. For this reason, diversification only by asset class is not sufficient. This is a strong argument for holding cash or Treasury bills and appropriate hedges.
Potential High Reward In Turkey
Turkey represents a medium risk high reward market. Turkey stocks have the potential to literally double in a short period of time if it was not for the government policies.
President Erdogan’s quarter century hold on Istanbul has ended. An opposition candidate has won a repeat ballot.
Momo Crowd And Smart Money In Stocks
The momo crowd is buying stocks. Smart money is inactive.
Gold
The momo crowd is buying gold. Smart money is inactive.
Oil
The momo crowd is aggressively buying oil. Smart money is inactive.
Marijuana
The momo crowd is buying marijuana stocks. Smart money is inactive.
Technical Patterns
Junior gold miners are tracing a hanging man. This is bearish. ETF of interest is GDXJ. Before considering this trade, please read the latest post on gold as the risk is very high.
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 expect the market to open higher.
Interest rates are ticking down and bonds are ticking up.
Currencies are mixed.
Gold futures are at $1409, silver futures are at $15.31, and oil futures are $57.89.
S&P 500 resistance levels are 3020 and 3050; support levels are 2925, 2918 and 2860.
DJIA futures are up 61 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 22% – 30% and short to medium-term hedges of 5% – 15% and short term hedges of 5% – 15%.
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