WEEKLY MARKET DIGEST: SHOULD YOU DISREGARD RISK AND BUY THE STOCK MARKET MOMENTUM? $DIA $GLD $QQQ $SLV $SPY $TBT $USO

Twitter
LinkedIn
Facebook

WEEKLY MARKET DIGEST: SHOULD YOU DISREGARD RISK AND BUY THE STOCK MARKET MOMENTUM? $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.

QUADRUPLE WITCHING, CHINA STOCKS POSITIVE FOR THE YEAR, MOMO BUYING

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

Quadruple Witching

Today is quadruple witching.  In quadruple witching, stock index futures, futures options, stock options and single stock futures expire.

This time, the net effect of quadruple witching is heavy buying.

China Positive For The Year

China stock index CSI 300 has become positive for the year.

Mortgage Forbearance

Mortgage forbearances decline.  This is an example of non traditional data that is showing the economy is getting stronger.

Mortgage forbearances were 8.7% of active mortgages compared to 8.8% in the prior week.

It is important to look at the data not the way a prudent person may look but the way the stock market is looking at it right now.  A prudent person would say that 4.6 million home owners cannot pay their mortgage and that is a negative.  The stock market looks at it in a positive manner by seeing the decline of 0.1%.

Momo Crowd And Smart Money In Stocks

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

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 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 in the early trade.  Smart money is inactive.

Technical Patterns

Stocks in Hong Kong are tracing a flag.  This is bullish.  ETF of interest is FXI.

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.  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 $1745, silver futures are at $17.86, and oil futures are $40.23.

S&P 500 futures resistance levels are  3155, 3182 and  3228: support levels are 3124, 3114 and  3075.

DJIA futures are up 356 points

JOBLESS CLAIMS WORSE THAN EXPECTED — CONTRADICT OTHER STRONG DATA

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

Jobless Claims

Initial Jobless Claims came at 1.508 million vs. 1.35 million consensus.  This data is weaker than expected.

Contradiction

Jobless claims data continues to contradict other exceptionally strong economic data.

The reason may be that other economic data is strong because of the pent up demand.  What will happen when the pent up demand wears off?  For the moment, stock market investors are not thinking about it.  However prudent investors should think about it and try to get ahead of the curve.

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 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 lightly selling oil.

For longer term, please see oil ratings.

Marijuana

The momo crowd is lightly 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.  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  stronger.

Gold futures are at $1728, silver futures are at $17.61, and oil futures are $38.34.

S&P 500 futures resistance levels are  3114, 3124 and  3155: support levels are  3075, 3009 and  2924.

DJIA futures are down 241  points.

THE VERY FIRST CRACK APPEARS IN THE ‘STOCK MARKET WILL GO UP NO MATTER WHAT’ THESIS

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

Bulls’ Thesis

In response to questions from subscribers, a part of the Morning Capsule is an expanded version of two sections from yesterday’s Afternoon Capsule.

The stock market bears think that aggressive buying of the stock market by the bulls is misplaced and based mostly on momentum. Bulls counter that they have a thesis. Bulls’ thesis is that stocks will go up, no matter what happens to the economy and to the virus.

See also  PAY ATTENTION TO NVIDIA CHART FOR NEAR TERM MARKET DIRECTION, TECH INSIDERS SELL, BALTIMORE IMPACT

Now the very first crack has appeared in bulls’ thesis. 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 expansion of Fed’s balance sheet. As the chart shows, the Fed’s balance sheet stood at $0.87 trillion before the financial crisis in 2008. In March 2009, when an Arora signal was given to aggressively buy stocks, Fed’s balance sheet stood at $2.08 trillion.       In 2018, the Fed’s balance sheet reached $4.4 trillion.
  • The chart shows that when the Fed reduced its balance sheet to $3.77 trillion, the stock market fell about 20% in December 2018.
  • The chart shows that the stock market drop scared the Fed and the Fed did an about face. The Fed started increasing its balance sheet. The stock market took off.
  • The chart shows that in October 2019, the Fed started adding liquidity and the stock market took off to a new high.
  • The chart shows that now Fed balance sheet stands above $7 trillion and on its way to $10 trillion.
  • Previously the stock market was levitating because investors were hiding in big five tech stocks of Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG) (GOOGL) and Facebook (FB). Now as the Fed’s actions seep into the economy, the stock market rally has considerably broadened.
  • The sum total of the foregoing is that huge gains in the stock market over the last decade and the stock market rally since the coronavirus low is primarily driven by the Fed.

The four elements

Here are the four elements of the bulls’ thesis:

  • If the economy becomes strong, stocks will win.
  • If there is a vaccine or antiviral, stocks will win.
  • If the virus resurges, there is no vaccine and there is no antiviral, stocks will win because of more money printing by the Fed.
  • If the economy becomes weaker, the stock market will win because of more money printing by the Fed.

Intransigence

Until recently, the Fed has been unreasonably intransigent that they will continue their massive money printing operation even if the economy became strong and there was no need for it.

The first crack

Powell is a very smart man. The way he came across in his press conference after the FOMC policy decision was troubling in that he was going to do whatever it took without regard to consequences. Why would a smart man like Powell show such intransigence?

Pat Toomey, a very smart Senator, was able to get the truth out of Powell. Now it is clear that Powell is being very clever in exhibiting the intransigence because he wants everybody to believe that the Fed is all in and there are no limits to what the Fed can do. Based on the exchange with Toomey, it is clear that Powell knows his limits and in reality what the Fed can do has limits. The Fed may have difficulty going far beyond the present programs. Here are the key excerpts from what Powell said:

  • We’re not actually increasing the dollar volume of things we’re buying. We’re just shifting away from ETFs toward this other form of index.
  • If market function continues to improve, then we’re happy to slow or even stop the purchases.
  • And I don’t see us as wanting to run through the bond market like an elephant doing things and snuffing out price signals and things like that.

The crack in the bulls’ thesis is that contrary to their belief, the Fed is becoming measured and may have difficulty expanding its balance sheet beyond $10 trillion. In plain English, unlimited money printing is highly unlikely.

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

API data was bearish.

The momo crowd is acting like a yo-yo 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 down and bonds are ticking.

The dollar is  stronger.

Gold futures are at $1729, silver futures are at $17.73, and oil futures are $37.91.

See also  GAMMA SQUEEZE IN AMD, MUSK SUES OPENAI, UNTHINKABLE MOVE ON APPLE

S&P 500 futures resistance levels are  3155, 3182 and  3228: support levels are  3114, 3075 and  3009.

DJIA futures are up 59 points

VIRUS BREAKTHROUGH, CONSUMER SPENDING ON STEROIDS, ROUND ROBIN BUYING ON FED

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

Virus Breakthrough

A study from the U. K. shows that old steroid drug Dexamethasone cuts down the death rate for patients on ventilators from 40% to 28% and for patients needing oxygen from 25% to 20%.

Futures jumped about 200 DJIA points on the news on top of an already over 700 point up move on round robin buying.

Round Robin Buying

Yesterday the Fed announced that they would buy individual bonds.  The stock market had a positive swing 0f about 1000 DJIA points. Optimism over the Fed buying individual bonds carried through Asia. In Japan, Nikkei was up 4.9% and in Hong Kong Hang Seng was up 2.4%. The round robin then moved to Europe. German stocks rocketed about 3%. Both French and U. K. stocks rocketed about 2.5%.  This was before the news on the wires.

Round robin next moved to the United States where the momo crowd was buying because the stocks in Asia and Europe were up.

$1 Trillion Infrastructure Proposal

If there was not enough money already sloshing around, Trump wants to borrow $1 trillion more and spend it on infrastructure.  Democrats are supporting Trump but some conservative Republicans are concerned that borrowing and spending is getting out of hand.

Consumer Spending On Steroids

If you thought that the pandemic would cause consumers to save more and spend less, new data shows that you were wrong.

May Retail Sales skyrocketed to 17.7% vs. 9.0% consensus.

Retail Sales Ex-auto rocketed to 12.4% vs. 5.2% consensus.

This data shows why it is dangerous for investors to get locked into fixed opinions. It is important to start everyday in neutral and let the data guide you.

Crowd And Smart Money In Stocks

The momo crowd is extremely aggressively buying stocks in the early trade. Smart money has lightly started selling near the highs as we write this Morning Capsule.

Gold

The momo crowd is aggressively selling gold in the early trade.  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.

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 positive.  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 $1732, silver futures are at $17.62, and oil futures are $38.61.

S&P 500 futures resistance levels are 3075, 3114 and  3124: support levels are 3009, 2924 and 2870.

DJIA futures are up 888 points

PRUDENT INVESTORS PAY ATTENTION — STOCK MARKET TRACES AN IMPORTANT REVERSAL PATTERN

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

Reversal Pattern

Stock market investors are getting concerned again about coronavirus. The concern is surfacing after frenzied buying buy the momo (momentum) crowd during which they ignored coronavirus. In the U. S., cases are increasing in many states as expected. In China, a section of Beijing is on lockdown. Coronavirus numbers are bad in India and Brazil. Interestingly, all of this and many more factors are showing up in an important technical pattern in the stock market. The pattern is island reversal pattern. All island reversal patterns are not equal — some are bullish and some are bearish, some are potent and some are benign. The pattern being traced now is an ominous pattern. If it was not for the Fed ‘not thinking’ and bent upon causing a stock market bubble, a very strong and clear negative conclusion could be drawn from this pattern. 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 popular stock market index Dow Jones Industrial Average (DJIA).

Note the following:

  • The chart shows that an island was formed by two gaps, one on the left hand side and one on the right hand side.
  • The chart shows that Arora sentiment indicator was giving a sell signals throughout the formation of the island. As we have shared before, Arora sentiment indicator reached extreme positive zone during this period. Sentiment at extremes is a contrary indicator. In plain English, when sentiment becomes extremely positive, it is a sell signal. It is important to note that some publically available indicators work well while others do not. In general we have found that publically available sentiment indicators do not work well, hence the need for proprietary indicators.
  • The chart shows that on the last two days of the island, smart money was selling.
  • The chart shows an inside day occurred the day after the island reversal. Further during this inside day, the candle is red. In plain English, this means that the close was below the open in the stock market.
  • The chart shows that the stock market is opening up lower after the inside day.
  • If the inside day did not occur, it could have nullified the negative implications.
  • The chart shows that the volume was very high on the day when the gap was formed on the right hand side of the chart. This adds to negative potency of the pattern.
  • The chart shows that RSI reached 95 when the island was being formed. This was an extremely overbought level.
  • The chart shows that while the island was being formed and prior to the stock market falling, RSI gave a sell signal when it crossed below the moving average shown on the chart.
  • In a pane below the volume, the chart shows S&P 500 ETF (SPY) which represents the benchmark stock market index (SPX). The pattern in the S&P 500 is the same as in Dow Jones Industrial Average. It is important for investors to confirm the pattern by looking at different indices.
  • Not shown on the chart for the sake of readability are Nasdaq 100 ETF (QQQ) which represents Nasdaq 100 (NDX) and small-cap ETF (IWM) which represent Russell 2000 (RUT). The patterns for these indices look different from the one traced in Dow Jones Industrial Average and S&P 500.
  • The late stages of the rally have been characterized with strong up moves in travel related stocks such as airline stocks and cruise lines stock.
  • The chart shows American Airlines (AAL) stock tracing a less ominous pattern. The same is the case with other airlines such as United Airlines (UAL) and Spirit Airlines (SAVE).
  • The chart shows Carnival (CCL) is tracing a pattern that is less ominous. Similar pattern is being shown by Royal Caribbean (RCL) and Norwegian Cruise Line (NCLH).
  • Investors have been hiding in big five tech stocks of Apple (AAPL), Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG) (GOOGL) and Facebook (FB). The patterns in these stocks are nowhere near as ominous as in Dow Jones Industrial Average and S&P 500.
See also  WEEKLY STOCK MARKET DIGEST: AI ENTHUSIASTS, STOCK MARKET MOMO CROWD, AND THE FED IGNORE HOTTER INFLATION

Putting It All Together

Where many investors go wrong with technical analysis is that they do not put in the time and effort needed to learn it. It takes years to get good at it. In this case, it is not just the island reversal pattern, but also the following are very important:

  • The size of the gaps.
  • The location of the island — in this case after a very strong rally.
  • The day after the island is formed and the subsequent day.
  • RSI during the time the island is formed.
  • Sentiment during the time the island is formed.
  • The height of the island — tall islands give stronger signals than shallow islands.
  • Volume.
  • Duration of the island and many more factors.

Due to the Fed’s actions, more data points are needed before making any definitive conclusions.

Momo Crowd And Smart Money In Stocks

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

Gold

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

For longer term, please see gold and silver ratings.

Oil

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

For longer term, please see oil ratings.

Marijuana

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

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 $1712, silver futures are at $17.14, and oil futures are $34.88.

S&P 500 futures resistance levels are 3009, 3075 and 3114: support levels are 2924, 2870 and 2785.

DJIA futures are down 599 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 27% – 35% 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.

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

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

Subscribe to 'Generate Wealth'

Free Forever

More To Explore

30 Day Free Trial

Cancel within 30 days and you owe nothing

When you take a FREE 30 day trial, you get access to powerful techniques used by billionaires and hedge funds to grow richer. You can continue to use these powerful techniques to grow richer even if you cancel your subscription. You come out ahead by subscribing no matter how you look at it.

A fortune is to be made from AI stocks.
Get the list of 18 AI stocks to grab your share of the profits — no cost to you.

A fortune is to be made from AI stocks.

Get the list of 18 AI stocks to grab your share of the profits.

AI is a $1 Trillion Market

Making A Fortune
In Artificial Intelligence

Golden Age of Artificial Intelligence