(The Weekly Digest reproduces the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers. )
SERIOUS DIVERGENCE IN SENTIMENT POSES MAJOR RISK TO BOTH UPSIDE AND DOWNSIDE
At The Arora Report, we put in a considerable amount of effort in compiling our proprietary sentiment indicators. At extremes, sentiment is a contrary indicator. At present the sentiment between serious measured investors and the momo crowd is showing the biggest divergence EVER. About 30% of serious measured investors are bullish; this is a very low number and argues for the U. S. stock market going up.
The momo crowd is about 70% bullish; this is a very high number and argues for the U. S. market going down.
Unless one side gains the upper hand, the market is likely to be range bound. If the momo crowd gains the upper hand, serious investors will start thinking that they are missing out and pour more money into the market exaggerating the upmove. If the serious investors start winning, momo crowd will panic and sell exaggerating the move to the downside.
Interest rates are moderating.
Oil broke below $59 before bouncing.
The momo crowd continues to aggressively buy gold and silver.
Our very, very short-term early stock market indicator is neutral.
Gold futures are at $1215, silver futures are at $17.47, and oil futures are $59.26.
S&P 500 resistance levels are 2150 and 2200; support levels are 2100, 2063, and 2038.
DJIA futures are up 14 points.
TWO NEW IMPORTANT NUMBERS INDICATE DEFLATION
Our models give heavy weight to producer prices because inflation, not deflation, tends to show up in Producer Price Index (PPI) long before it shows up in CPI. In other words, PPI is a leading indicator. April PPI came at -0.4% vs. +0.2% consensus. Core PPI came at -0.2% vs. +0.1% consensus.
Gold is traditionally a hedge for inflation and tends to do badly during periods of deflation. Do not tell this to the momo crowd, they are buying gold and silver aggressively on deflationary data.
The new data shows that supply of crude oil far exceeds demand. Again do not tell the facts to the momo crowd, they are aggressively buying crude oil.
Interest rates are hanging near their high. Based on inflationary data rates should have fallen. Again do not tell this to the momo crowd, they are aggressively shorting bonds. Bonds move inverse to interest rates.
Our very, very short-term early stock market indicator is mild positive.
Gold futures are at $1219, silver futures are at $17.36, and oil futures are $60.27.
S&P 500 resistance levels are 2122 and 2150; support levels are 2063, 2038, and 2017.
DJIA futures are up 116 points.
BEARS FAILED BUT MAY GET ANOTHER SHOT AFTER POOR RETAIL SALES DATA
Yesterday bears took their best shot at the U. S. stock market and failed. DJIA after falling about 1% closed down only 0.2%.
Bears may get another shot today based on poor Retail Sales data. April Retails Sales Ex-auto came at 0.1% vs. 0.6% consensus. The consumer is the backbone of the U. S. economy. In April, consumers were not in the spending mood in spite of lower gasoline prices. Of course bulls will treat weak retail sales as good news claiming that this number means the Fed will have to delay an interest rate rise.
Gold momo crowd is excited over the weak retail sales and is buying aggressively.
Interest rates are falling.
Another leg of short squeeze is underway in oil. DOE will release inventory data at 10:30 am ET. The data will determine if the short squeeze gains more fuel or fizzles.
Our very, very short-term early stock market indicator is neutral.
Gold futures are at $1209, silver futures are at $16.91, and oil futures are $61.35.
S&P 500 resistance levels are 2122 and 2150; support levels are 2063, 2038, and 2017.
DJIA futures are up 1 points.
‘SELL GERMANY AND BUY GREECE’ TRADE ROILS THE MARKETS WORLDWIDE
For all practical purposes, the government of Greece is bankrupt. In contrast, Germany has rock solid financial strength. The trade of the day that has roiled markets worldwide is to ‘sell Germany and buy Greece.’ Even more perverse is the trigger for this massive trade. The trigger is that Greece made €750 million interest payment to IMF one day ahead of the deadline. You may ask, “Where did Greece get the money?” Greece borrowed €650 million from its IMF holding account to make a €750 million to interest payment to IMF. Greece got the remaining €100 million from the cash it seized from local governments.
Apparently some large market participants now believe Greek bonds to be safer, so they are aggressively buying Greek bonds. You may ask, “Where are they getting this money to buy Greek bonds?” They are selling German bunds.
The yield on Germany bunds is screaming higher; the yield on Greek bonds is falling.
With interest rates rising on bunds, a massive short squeeze is taking place hurting hedge funds short euro. This is translating into U. S. Treasuries falling, stocks all over the world falling, gold running up, and oil running up.
At full display today is what market mechanics can do.
Our very, very short-term early stock market indicator is negative.
Gold futures are at $1195, silver futures are at $16.44, and oil futures are $60.39.
S&P 500 resistance levels are 2100, 2122, and 2150; support levels are 2063, 2038, and 2017.
DJIA futures are down 100 points.
SAUDI KING SNUBS OBAMA, CHINA LOWERS INTEREST RATE
The Saudi King will not attend summit at Camp David to be hosted by Obama this week. Saudi’s changed their plans Friday night to attend the meeting apparently to show displeasure over the Iran deal.
The foregoing would have been positive for oil and negative for the stock market but then over the weekend China cut its interest rate for the third time in six months. It was also announced that China has now surpassed the United States and is the biggest importer of crude oil.
There are two interpretations of China’s move. The first is the Chinese economy is so weak that China had to cut interest rate for the third time, this is negative. The second interpretation is that the Chinese government is determined not to let the Chinese economy falter, this is positive.
Oil, gold, and bonds are range bound.
Our very, very short-term early stock market indicator is neutral.
Gold futures are at $1188, silver futures are at $16.43, and oil futures are $59.18.
S&P 500 resistance levels are 2122 and 2150; support levels are 2063, 2038, and 2017.
DJIA futures are up 9 points.
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