WEEKLY MARKET DIGEST: RAISE CASH AND HEDGES, COPPER PULLBACK LEADS TO VOLATILITY, CHINA LOCKS DOWN 40 MILLION PEOPLE $GLD $QQQ $SLV $SPY $USO

WEEKLY MARKET DIGEST: RAISE CASH AND HEDGES, COPPER PULLBACK LEADS TO VOLATILITY, CHINA LOCKS DOWN 40 MILLION PEOPLE $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.

CHINA LOCKS DOWN 40 MILLION PEOPLE BUT MOMO BUYS STOCKS ON WHO INACTION

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

Lockdown

China has locked down 40 million people to control the spread of the virus. The number of people subject to lockdown has dramatically increased.  Yesterday the stock market was significantly down when the World Health Organization (WHO) decided not to declare a global health emergency.  The downward momentum reversed to the upside on the news.

Intel Earnings

Normally we do not discuss individual companies in the Morning Capsule.  However today it is important to note that positive Intel () earnings are significantly improving the sentiment.

Momo Crowd And Smart Money In Stocks

The momo crowd aggressively started buying on the momentum reversal and has continued to buy this morning.  Smart money is lightly selling into the strength.

Gold

The momo crowd is buying gold as a potential safe haven if the virus spreads.  Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is aggressively selling oil in the early trade.  Yesterday the momo crowd aggressively bought oil on WHO news.

Smart money is inactive.

For longer term, please see oil ratings.

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 but expect the market to open much 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 down and bonds are ticking up.

The dollar is slightly stronger.

Gold futures are at $1559, silver futures are at $17.92, and oil futures are $54.87.

S&P 500 resistance levels are  3360 and 3400; support levels are 3300, 3288 and 3256.

DJIA futures are up 82 points.

RAISE CASH AND HEDGES, COPPER PULLBACK OFTEN LEADS TO STOCK MARKET VOLATILITY

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

Raise Cash And Hedges

Based on the ZYX Asset Allocation Model, consider raising cash and hedges.  Please see ‘What To Do Now’ section below.

Copper

Copper is considered a barometer of economic activity especially in the emerging world.  Copper has pulled back.  A copper pullback often precedes stock market volatility.

ECB

European Central Bank President Lagarde press conference was as expected.

Jobless Claims

Initial Claims came at 211K vs. 215K consensus.

Momo Crowd And Smart Money In Stocks

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

Gold

There is no discernable smart money or momo crowd activity in gold.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is selling oil. Smart money is selling oil.

For longer term, please see oil ratings.

Marijuana

There is no discernable smart money or momo crowd activity in marijuana.

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 $1556, silver futures are at $17.74, and oil futures are $55.11.

S&P 500 resistance levels are  3360 and 3400; support levels are 3300, 3288 and 3256.

DJIA futures are down 100 points.

THIS CHART SAYS TRUMP MAY BE RIGHT ABOUT STOCK MARKET 5000 POINTS HIGHER

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

Dow 5,000 Points Higher

President Trump says a lot of things — sometimes they check out and other times they don’t.

Trump’s latest statement about the most important topic for stock market investors is likely correct. Let’s explore with the help of a chart.

The Chart

Please click here for a chart showing Federal Reserve’s assets.

Note the following:

  • Trump says that Dow Jones Industrial Average (DJIA) would have been 5,000 to 10,000 points higher if it was not for the Fed.
  • The chart shows dramatic rise in Federal Reserve assets since late last year.
  • Since the Fed started printing more money, the U. S. stock market has risen in lockstep with the Fed’s balance sheet.
  • The conclusion is unmistakable that the money the Fed is printing is going into stocks, especially in large cap stocks such as Apple (AAPL), Amazon (AMZN), Facebook (FB), Google (GOOG) (GOOGL) and Microsoft (MSFT).
  • If the data from the chart was extrapolated with an assumption that instead of reducing its balance sheet during the earlier period shown on the chart, the Fed was increasing its balance sheet at the same rate as it is doing now and if the Fed had not raised interest rates previously, the stock market in terms of Dow Jones Industrial Average could have been easily higher by 5000 points.

Rise Of Mega-caps

Here are the reasons that money is flowing into mega-caps:

  • Mega-caps carry very heavy weights in indexes such as S&P 500 index (SPX) represented by ETF (SPY). Mega-caps also carry a very heavy weight in the popular Nasdaq 100 ETF (QQQ). When investors buy some ETFs and some mutual funds, the money is disproportionately flowing into mega-caps.
  • This market is controlled by the momo (momentum) crowd. Mega-caps have the momentum.
  • Interestingly even smart money has been buying mega-caps while selling other stocks into the strength.
  • Investors assume that growth in earnings and revenues is on autopilot in these mega-caps. For this reason investors think that they are taking less risk by buying mega-caps.

Don’t Be Complacent

Investors should not get complacent even though Trump has succeeded in beating the Fed into submission for these reasons:

  • Exogenous events can always occur such as a virus that is spreading across China getting out of control.
  • Sentiment is getting too frothy. Please click here to see the chart showing 14% correction in January 2018 when the sentiment became frothy. For the sake of complete transparency, this chart was previously published.
  • Investors ought to look at what is happening now as a mania. All manias eventually end. Before sending me hate mail, remember that The Arora Report correctly called for buying stocks on Trump’s election at a time when most analysts were giving sell signals. Shortly thereafter, The Arora Report called for Dow 30,000 in Trump’s first term when nobody was talking about Dow 30,000 and subsequently repeated the call several times.
  • The Fed may lose control of the bond market.
  • Earnings may not come through as well as the market is expecting.

Early Indicators

For an early indicator, consider watching semiconductor stocks such as AMD (AMD), Intel (INTC), Micron (MU) and NVIDIA (NVDA). Also keep an eye on how Netflix (NFLX) stock performs after mixed earnings. Ending of a short squeeze in Tesla (TSLA) will be another early indication of a potential pullback.

Momo Crowd And Smart Money In Stocks

The momo crowd is aggressively buying stocks in the early trade.  Smart money is selling into the strength.

Gold

The momo crowd is buying gold. Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

API showed a surprise build in oil inventories of 1.1M barrels vs. consensus of a draw of 474K barrels.

The momo crowd is selling oil.  Smart money is also selling oil.

For longer term, please see oil ratings.

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 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 slightly weaker.

Gold futures are at $1555, silver futures are at $17.84, and oil futures are $57.75.

S&P 500 resistance levels are  3360 and 3400; support levels are 3300, 3288 and 3256.

DJIA futures are up 60 points.

PAY ATTENTION TO THE VIRUS IN CHINA AND WHAT HAPPENED TO THE LAST JANUARY ‘SKY IS THE LIMIT’ STOCK MARKET MANIA

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

China Virus

History does not always repeat itself in the stock market but is always instructive. Overbought markets tend to be vulnerable. Sometimes it is an exogenous event. Could it be that the deadly virus spreading across China stops the buying frenzy?

Mania

There is a mania going on in the stock market but not in the terms you would think. Before you send me hate mail for raining on the parade, remember that The Arora Report gave a signal to buy stocks on Trump election at a time when most analysts were giving sell signals. Of course, long time readers already know that my call was for Trump election at a time when Wall Street had anointed Hilary Clinton as the next president. Shortly after Trump election, The Arora Report made a case for Dow 30,000 in Trump’s first term. At that time nobody was calling for Dow 30,000. I have subsequently repeated the call several times.  Let’s explore the stock market mania that is going on this month with the help of an annotated chart.

The Chart

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

Note the following:

  • The mania is not in terms of stock market gains. The mania is in stock market gurus almost unanimously saying that all is clear and they cannot find anything negative, and their followers buying with belief that the sky is the limit for the stock market. Trump will get re-elected, Democrats will be decimated for impeaching Trump, another new leg of the bull market has just started and the Fed will print more money, so goes the story that is propelling all the bullishness. Does anyone see any holes in this story?
  • The chart shows the last time similar mania occurred was in January 2018.
  • The chart shows that RSI is overbought now similar to the way it was during the January 2018 mania in the stock market.
  • Purists will say that this time RSI is slightly lower and has not been overbought for as long as the last time by looking at the chart. Such purists ought to look at RSI on weekly charts of S&P 500 ETF (SPY) which represents popular benchmark S&P 500 (SPX) and Nasdaq 100 ETF (QQQ). When looking at all three, the only unmistakable conclusion is that the stock market is technically overbought and vulnerable to a pullback.
  • Based on proprietary indicators at The Arora Report, the sentiment in the stock market is not as manic as it was the last time. In a perverse way, this is a slight positive in relative terms.
  • The chart shows that a 14% correction occurred after similar January stock market mania last time.
  • The momo crowd is aggressively buying stocks but smart money is lightly and selectively selling stocks into the strength. However, smart money is buying tech stocks.

This Time Is Different

Gurus would say that this time is different. During the last January mania, the bond market became a problem causing the correction; this time there is no apparent bond market problem. Well, the last time when the stock market mania was in its frenzy, gurus could not see the bond market problem. They can talk about it now only with the benefit of hindsight. Certainly this time is different in many ways. However, the basics of greed and fear in the stock market and gurus coming out of the woodwork with bullish statements during a mania have not changed. Where were these gurus when Trump was first elected?

The Key

Investors ought to carefully watch the earnings. Since the stock market is controlled by the momo (momentum) crowd and right now ‘bad news’ is ‘good news’, the stock market may ignore poor earnings from many companies. However the stock market will have a difficult time ignoring if earnings are less than stellar from mega-caps Apple (AAPL), Amazon (AMZN), Facebook (FB), Google (GOOG) (GOOGL) and Microsoft (MSFT). The stock market will also have a difficult time ignoring earnings from the semiconductor sector if they are less than stellar. Semiconductor stocks to watch include AMD (AMD), NVIDIA (NVDA), Micron (MU) and Intel (INTC).

In the middle of all the certainty about the stock market that is being proclaimed by the gurus and their followers, it is worth remembering that Arora’s Second Law of Investing and Trading has been time tested over a long time: Nobody knows with certainty, what is going to happen next in the markets.

Investors should keep a close eye on the virus that is spreading across China. Travel stocks in China have already taken a hit. China has confirmed that the virus can spread between humans.

Momo Crowd And Smart Money In Stocks

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

Gold

The momo crowd is selling gold.  Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

Oil had run up on Friday on one of the two major factions stopping the export of oil  from some ports in Libya. A cease fire has been negotiated under the auspices of Europeans lead by Germans.  In theory this should cause oil to pull back.

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.   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 $1552, silver futures are at $17.83, and oil futures are $57.85.

S&P 500 resistance levels are 3360 and 3400; support levels are 3300, 3288 and 3256.

DJIA futures are down 71 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 23% – 33% and short to medium-term hedges of  5% – 15% and short term hedges of 10% – 15%.

 

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.

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

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