WEEKLY MARKET DIGEST: SHOCKING INFLATION DATA, INTEREST RATES RISE SLOWING STOCK MARKET MOMENTUM $DJIA $SPX $QQQ $GLD $SLV $USO

WEEKLY MARKET DIGEST: SHOCKING INFLATION DATA, INTEREST RATES RISE SLOWING STOCK MARKET MOMENTUM $DJIA $SPX $QQQ $GLD $SLV $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.

HERE IS WHY STOCK MARKET MAY GO 12% HIGHER ON A DEMOCRATIC SWEEP

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

Retail Sales

Retail Sales Ex-auto came at 1.9% vs. 1.4% consensus.

Productivity

Productivity came at 7.3% vs. 3.5% consensus.

Industrial Production

Industrial Production came at 3.0% vs. 2.9% consensus.

Capacity Utilization came at 70.6% vs. 70% consensus.

Potential Democratic Sweep

First and foremost I am politically agnostic.  My sole objective is to help investors.

The stock market has loved Trump. Trump’s policies have been the major factor behind the stock market rise. If there is a Democratic sweep in the November election, many of Trump’s policies will be reversed and taxes will go up.  Based on any rational analysis, the stock market should go down about 20% on a Democratic sweep.  These days, rational analysis of the stock market has gone out of fashion.  For those rare birds who still attempt to rationally analyze the stock market, it may come as a shocker that under one scenario the stock market may go up about 12% on a Democratic sweep. To understand this scenario, think of a party of drunkards where everyone loves a person who serves the most alcohol. At present, the stock market is behaving like a party of drunkards.  Equivalent of alcohol is massive borrowing and money printing.  The stock market is loving a potential Democratic sweep because Democrats will borrow more than Trump.

Prudent investors may be troubled. How would the borrowed money be paid back? Is there a limit to borrowing? To help navigate these treacherous conditions that are driving the stock market higher, let’s explore with the help of a chart.

The Chart

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

Note the following:

  • The chart shows the measured target for the stock market is S&P 500 level of 3800 from a technical perspective.
  • The target is based on excluding coronavirus dip encased in a red rectangle on the chart. If this dip was not excluded, the stock market target would be higher.
  • The reason for excluding the coronavirus dip is that this is an abnormal one-time situation not likely to be repeated. Further the expectations at present are that there will be a vaccine.
  • The chart shows that The Arora Report correctly called that the virus would hurt stocks prior to the fall in the stock market giving investors adequate warning to protect themselves.
  • Buy zones are very powerful. They often give investors opportunities to buy good stocks and ETFs at great prices. The chart shows that many stocks and ETFs fell into Arora buy zones during the market swoon. For example Apple (AAPL) could have been bought as low as $212.61 in the Arora buy zone and is trading at $460.51 as of this writing.  Microsoft (MSFT) could have been bought as low as $132.52 in the Arora buy zone; it is trading at $209.23 as of this writing.
  • The stock market has hesitated to make a new high in the S&P 500 due to rising interest rates. Interest rates have risen from a low of 0.51% to 0.71% on 10-year Treasuries. This has been the result of Producer Price Index (PPI) and Consumer Price Index (CPI) coming way hotter than expected.
  • Note that Dow Jones Industrial Average (DJIA) has lagged S&P 500 but Nasdaq 100 (NDX) represented by ETF (QQQ) has outperformed. Nasdaq has outperformed due to a heavy weight of stocks like Apple, Facebook (FB) and Alphabet (GOOG) (GOOGL).
  • Semiconductors have been a leading sector. Applied Materials (AMAT), a major vender of semiconductor manufacturing equipment, just reported blowout earnings and guided higher. Investors should also consider watching stocks of AMD (AMD), NVIDIA (NVDA) and Qualcomm (QCOM) to gage sentiment.

Trump Policies

The stock market has risen, in large part, due to the expansion of P/E multiples.  A big reason behind the expansion of stock market P/E multiples has been the following Trump policies:

  • Tax cuts for corporations.
  • Less regulation.
  • Jaw boning the Fed to lower interest rates and print more money.
  • Heavy borrowing by the government.

Democratic Sweep

In theory, based on a rational analysis, a Democratic sweep should send the stock market 20% lower.  We have previously provided you with this analysis.   After initial apprehension, the stock market is now loving a potential Democratic sweep.  The reason is that the Democrats will borrow significantly more than Trump would.  Democrats will increase taxes and that will reduce earnings.  For the longest time, the wisdom was that the single best determinate of the future of the stock market was earnings. Now earnings do not matter. It is the liquidity in the market that matters. More borrowing will not only create more liquidity, it will create more spending. More spending may offset some of the hit to earnings by higher tax rates.

What Does It All Mean?

Prudent investors ought to follow the concept of protection bands. This is the only realistic way to protect yourself while taking advantage of the stock market bubble if it gets bigger.

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 behaving like a yo-yo in 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.

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 and bonds are range bound.

The dollar is  weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1967, silver futures are at $26.75, and oil futures are $42.05.

S&P 500 futures resistance levels are 3390, 3420 and 3469: support levels are 3320, 3278 and 3228.

DJIA futures are down  91 points.

EXCITEMENT OVER NEW HIGH, FIRST SUB ONE MILLION INITIAL CLAIMS SINCE MARCH

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

Excitement

Bulls are excited about potential new highs in the stock market.  As of this writing, S&P 500 is about one point away from a new high.

Initial Claims

Initial Jobless Claims came at 963K vs. 1.15M consensus.  This is a leading indicator and carries heavy weight in our models.  This is also the first sub one million initial claims since March.

The data indicates that employment is getting better faster than expectations.

Momo Crowd And Smart Money In Stocks

The momo crowd is aggressively buying momo stocks after a brief respite over the last few days.  Smart money is inactive.

Gold

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

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

The momo crowd is lightly buying miners, smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

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

For longer term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is neutral but expect bulls to attempt to move it 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 and bonds are range bound.

The dollar is  weaker.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1941, silver futures are at $26.52, and oil futures are $42.67.

S&P 500 futures resistance levels are 3390, 3420 and 3460: support levels are 3320, 3278 and 3228.

DJIA futures are down 40 points.

CPI FOLLOWS SHOCKING PPI — MOMO BUYS THE BAD NEWS

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

Hot CPI 

We previously shared with you that PPI came out shockingly hot.  In the past, producers did not pass higher costs to consumers.  The data just released shows that may be changing.

Core Consumer Price Index (CPI) came at 0.6% vs. 0.2% consensus.

Headline CPI came at 0.6% vs. 0.3% consensus.

These numbers show that inflation is heating up.  Subscribers often write us asking what would limit the Fed’s ability to keep on printing money and the government’s ability to keep on borrowing money.  One of the major factors that can impose limits is inflation.  The government claims there is no inflation and they contend there are no limits due to the lack of inflation.

The data is beginning to show otherwise.

Bad News

Inflation heating up is bad news for bonds and ultimately for stocks.  In the long run, it is good for gold but could be bad for gold in the short term. Having said that, these are only two pieces of data.  Two pieces of data do not make a trend.

Reversal Day

Yesterday turned out to be a reversal day.  Historically, a reversal day is followed by weakness. Of course that occurs when people are analyzing the market.  Right now, there is no analysis — to the momo crowd and most analysts, every tiny dip is a buying opportunity.  The momo crowd  aggressively bought the dip afterhours and this morning.

Momo Crowd And Smart Money In Stocks

To the momo crowd, ‘bad news is good news’.  The momo crowd bought the bad news on inflation. It will be interesting to see how gurus spin this bad news as good news.

The momo crowd is aggressively buying stocks as of this writing. Smart money is inactive.

Gold

The momo crowd is acting like a yo-yo in gold and silver in the early trade.  Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

API showed crude oil inventories fell by 4.401M barrels vs. consensus of a draw of 2.875M barrels.

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

For longer term, please see oil ratings.

Markets

Our very, very short-term early stock market indicator is undeterminable due to too much noise in the data.  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.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1947, silver futures are at $25.72, and oil futures are $42.50.

S&P 500 futures resistance levels are 3390, 3420 and 3460: support levels are 3320, 3278 and 3228.

DJIA futures are up 292 points.

PPI SHOCKER, RUSSIA APPROVES CORONAVIRUS VACCINE, TRUMP SPIKES THE MARKET AGAIN

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

PPI Shocker 

Producer Price Index (PPI) is a measure of inflation at the producer level.  If inflation persists at the producer level, ultimately it will show up either at the consumer level or corporate profits will suffer if corporations are not able to pass on higher costs to the consumer. It takes awhile for this to occur.

The government says there is no inflation. Yet PPI released by the government came at a shocking 0.6% vs. 0.3% consensus.

Core PPI came at 0.5% vs. 0.1% consensus.  Both are troubling numbers.

The Fed has said that it can continue printing money.  The limitation of printing money is the rise of inflation.  The Fed says there is no inflation.

Our leaders from both sides are in denial. What did the momo crowd do on this shocking bad number for the stock market?  They aggressively bought adding another 100 points to the DJIA.

Russia Approves Vaccine

Russia has approved a vaccine.  This is obviously good news but potentially not as good as it seems on the surface.  The data for the trial results is not available so far.  There is speculation that only about 100 people have been tested and now it is being administered to perhaps 1000 people.

Putin is trying to build confidence by saying that his daughter has taken the vaccine.

In the U. S., vaccine trials go through three phases.  It appears that Russian approval of the vaccine may be equivalent of Phase 2 approval in the United States.

After Russia’s move, expect calls in the United States to grow that FDA is too stringent and should allow vaccines without such stringent trials.

In our analysis, both efficacy and safety are important. However it is clear that a large segment of the population in the U. S. differs.  The reality of the stock market at this time is that they are buying on the headline without analyzing.

Capital Gains Tax Cut

Trump is spiking the stock market again.  Trump says he is considering a capital gains tax cut.  The stock market bulls are loving it — it does not matter to them that constitutionally Trump does not have the authority to cut capital gains tax.  There is no way Congress is going to pass a capital gains tax cut.

This is the main reason for aggressive buying this morning.  If Trump proceeds with a capital gains tax cut, expect the stock market to rocket higher by a significant amount

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 aggressively selling gold in the early trade.  Smart money is inactive.

The momo crowd selling in silver is especially aggressive.  You may recall that previously the momo crowd buying in silver was especially aggressive.

For longer term, please see gold and silver ratings.

Oil

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

For longer term, please see oil ratings.

Markets

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

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $1978, silver futures are at $27.65, and oil futures are $42.80.

S&P 500 futures resistance levels are 3390, 3420 and 3460: support levels are 3320, 3278 and 3228.

DJIA futures are up 346 points.

TRUMP ORDER TO SPIKE STOCK MARKET BY ENDANGERING SOCIAL SECURITY

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

Spike In The Stock Market

First and foremost I am politically agnostic.  My sole objective is to help investors.

After reaching a stalemate with Democrats, Trump issued executive orders to help the economy. The orders include Social Security and Medicare tax deferral This post is not intended to be a comprehensive analysis but limited to the impact of Social Security and Medicare tax deferrals on the stock market.

Trump’s order, if implemented, will spike the stock market. Let’s explore with the help of a chart.

The Chart

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

Note the following:

  • The stock market chart is a monthly chart to give investors a long term perspective.
  • The chart shows that after touching the upper band of the ‘mother of support zones’, due to coronavirus related fall, the stock market has gone straight up.  The monthly chart does not have a single red candle during the rise.  This is not a normal stock market behavior.
  • The chart shows that many stocks and ETFs entered Arora buy zones during the dip providing significant opportunities to buy at low prices. For the most part, these stocks and ETFs have not gone through their normal backing and filling process that would be expected. This is not normal.
  • When the federal government borrowed money to send $1,200 stimulus checks to most Americans, a large number of new trading accounts were opened. Did you already guess the dollar amount with which these accounts were opened? It was $1,200.
  • People opening these new brokerage accounts clearly did not need the federal government to borrow and send them $1,200.
  • Those who have lost their jobs need the most help. Unfortunately payroll tax cut will not help them.
  • Payroll tax cut will simply put more money in the pockets of those who have jobs. Some of the extra money will flow into the stock market.
  • The chart shows that RSI is positive and the stock market is decisively above the top support zone. With the stock market so strong, it does not need further spiking by another government program.
  • Many seniors depend on Social Security for most of their income. By some estimates, Social Security will become insolvent in about 15 years.
  • Most seniors depend on Medicare for their healthcare needs. Medicare is also underfunded.
  • In my view, it is the government’s job to help those who have been hurt badly by coronavirus but it is foolish to borrow and send money to those who do not need it.
  • One has to be delusional to believe that this strong stock market rally would have occurred without money printing and government borrowing.
  • The chart shows that the Fed’s balance sheet stood at $0.87 trillion before the 2008 recession. The Fed’s balance sheet is simply a fancy way of describing money printing.
  • The chart shows the progression of the Fed’s balance sheet on the way to $10 trillion.
  • Not shown on the chart is that the U. S. debt is now about $26 trillion. When properly accounting for all the liabilities of the government, the total liabilities stand at about $132 trillion. By some estimates each taxpayer’s share of the liability is about $860,000.

Small Amounts But Big Impact

Here are the reasons why additional amounts in small accounts from Trump’s payroll tax deferral will have a disproportionately large effect.

  • The total amount over tens of millions of accounts adds up.
  • It spikes the stock market sentiment.
  • So far the data shows that newer investors with small accounts tend to be super aggressive. Many place market orders and not limit orders. This has a disproportionate effect in running up the stock market.
  • This stock market is controlled by the momo (momentum) crowd. The momo crowd keeps on buying not because the economy is good but because the stock market is going up. The momo fire is raging.  Think of providing additional money to millions who will put it in the stock market as pouring gasoline over the fire.

What Does It All Mean?

There is a high probability of the stock market bubble getting bigger.  Investors should consider positioning themselves to make money from the stock market bubble getting bigger while protecting themselves. Opportunities to make money while controlling risks abound.

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.

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 down and bonds are ticking up.

The dollar is slightly stronger.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $2043, silver futures are at $28.68, and oil futures are $41.89.

S&P 500 futures resistance levels are 3390, 3420 and 3460: support levels are 3320, 3278 and 3228.

DJIA futures are up 89 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 29% – 37% and short to medium-term hedges of  3% – 8% and short term hedges of 3% – 10%.

 

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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