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.
HOUSING STARTS GET HOTTER, KURODA APPOINTMENT POSITIVE FOR STOCKS AND GOLD
To gain an edge, this is what you need to know today.
Housing Starts Get Hotter
After three consecutive hot data points, now there is a fourth one.
Housing starts came at 1326K vs. 1240K.
Building permits came at 1396K vs. 1300K.
These data points show that the U. S. economy is moving ahead full steam. In a perverse way, this poses headwinds for the stock market because interest rates will rise.
Smart Money And Momo Actions
Earlier this morning, the momo crowd was aggressively buying running Dow Jones futures higher to 25,436. The smart money came into the strength and aggressively sold. Futures have now fallen to 25,137 as of this writing.
Kuroda Appointment
Kuroda has been re-appointed as the head of the Bank of Japan. This is positive not only for stocks in Japan but also for gold and stocks worldwide.
The reason is that Kuroda advocates easy money policy.
Gold And Oil
Gold and oil are moving in lock step inverse to the dollar. Earlier today the dollar was much weaker but is beginning to strengthen as of this writing.
Bonds
Interest rates are ticking down and bonds are ticking up. Technically bonds are oversold and are vulnerable to a strong rally.
Technical Patterns
Gold miners are tracing a Hanging Man. This is bearish. ETF of interest is GDX.
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 can quickly turn positive since it is Friday and often there are short squeezes on Friday.
Gold futures are at $1357, silver futures are at $16.73, and oil futures are $61.10.
S&P 500 resistance levels are 2740, 2765 and 2800; support levels are 2700, 2688, and 2661.
DJIA futures are down 97 points.
A NEW BAD INFLATION DATA IN PPI BUT MOMO PLAYS THE ROUND ROBIN, SOUTH AFRICAN STOCKS SURGE
To gain an edge, this is what you need to know today.
A New Bad Inflation Data
Producer Price Index (PPI) was just released. PPI carries a heavier weigh in our models because it is a leading indicator. When inflation rises at the producer level, it is eventually passed on to the consumers.
Core PPI came at 0.4% vs. 0.2% consensus. Core PPI excludes food and energy. The reason for excluding food and energy is that they are very volatile and noisy. Please click here to see how we filter out the noise.
The Round Robin
Yesterday the U. S. stock market moved up on a massive short squeeze. Overnight Asian stocks went up because U. S. stocks went up. Stocks in Europe went up because stocks in Asia went up. As of this writing, in early trade, stocks in the U. S. are going up because Europe went up.
Momo And Smart Money
Oblivious to the data, the momo crowd is aggressively playing the round robin because prices are going up.
The smart money tends to trim into the strength and add into the weakness. This morning is no different. Smart money is lightly selling.
Dollar Sold On Deficit Concerns
The U. S. dollar is being aggressively sold on concerns about rising U. S. deficit.
Gold
Gold has been bought aggressively on concerns about inflation and the U. S. deficit. In an impressive move, gold broke out of the psychological important resistance at $1350 with ease. However in the very, very short-term, gold is now overbought. Unless significant new buying comes in, a pullback is probable.
Oil
Just like stocks, oil experienced a short squeeze. Smart money lightly sold oil into the strength.
South African Stocks Surge
South African stocks are surging more than 3% on the news that President Zuma has resigned. South Africa is Africa’s most sophisticated economy and will likely present many attractive investment opportunities going forward. As a full disclosure, ZYX Emerging recently took a position in South Africa when South African stocks dipped into the buy zone.
Technical Patterns
Utilities are tracing an Inside Bar. This is bearish. ETF of interest is XLU.
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 but can turn negative very quickly.
Interest rates are ticking up and bonds are ticking down.
Gold futures are at $1355, silver futures are at $16.79, and oil futures are $60.26.
S&P 500 resistance levels are 2740, 2765 and 2800; support levels are 2700, 2688, and 2661.
DJIA futures are up 218 points.
RAISING CASH AND HEDGES, CPI HOTTER, SMART MONEY LIGHTLY SELLS, MOMO HURT
To gain an edge, this is what you need to know today.
Increasing Cash And Hedges
Please see ‘What To Do Now’ section.
Hotter CPI
Consumer Price Index (CPI) came at 0.5% vs. 0.4% consensus. The model at The Arora Report incorporates CPI ex food and energy. Yes, we all consume food and energy. The reason for excluding them is that they are extremely volatile, cause a lot of noise in the data and make predictions harder.
CPI ex food and energy came at 0.3% vs. 0.2% consensus.
Impact Of Hotter CPI
The fundamental reason behind the market drop was specter of inflation. This CPI number is going to stoke those fears.
Interest Rates
Before this number and after the market drop, the consensus had moved to Fed increasing interest rates twice in 2018. In our analysis, the consensus is now likely to move towards three rate increases.
An important learning point is that these things are like a beauty contest. Our or your opinion does not matter. It is the opinion of the judges. To be successful, it is important to figure out what judges would do. In this case the judges are members of the FOMC. They will be influenced by any move in the consensus which is likely to move to three rate increases this year from two.
Competition
Stocks compete with bonds. As a very rough guide, a 1% move in interest rates should move the stock market down by about 16%. However, the other side of the coin is rising earnings of the companies. Earnings are likely to rise 10%. All in all it washes out for the time being.
Since from a fundamental hard data point of view, the two sides may be a wash, the market is going to move mostly on sentiment. Further smart money is going to start projecting interest rates and earnings for 2019 and start trading based on that.
Smart Money And Momo Crowd
Smart money lightly sold on the data. This does not mean that smart money is selling all of their positions. You may recall that smart money was lightly buying on dips. Now it is likely those are the positions they are selling. Smart money is likely maintaining its core positions.
The momo (momentum) crowd was aggressively buying at the end of yesterday and this morning before the number was released. At one point, they ran up futures almost 200 DJIA points. After the number was released, the momo crowd aggressively sold, at one point driving DJIA futures down almost 300 points. Futures have since recovered some since this writing.
To get an idea of the volatility, DJIA futures ran to as high as 24812 before the number and fell as low as 24280 after the number.
Gold
Gold first fell on the number because higher interest rates are bad for gold. But then traders had second thoughts because in the long run inflation is good for gold. This is leading to gold recovery.
Oil
API inventory data came at a rise of 3.9 million barrels vs. consensus of 3 million barrels. Oil is under pressure on this bearish data. EIA inventory numbers which are more authoritative will be released at 10:30 am ET.
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.
Interest rates are ticking up and bonds are ticking down.
Dollar is lifting after the number. Prior to the number the dollar was especially weak against the yen.
Gold futures are at $1331, silver futures are at $16.49, and oil futures are $58.47.
S&P 500 resistance levels are 2631, 2661 and 2688; support levels are 2615, 2594, and 2550.
DJIA futures are down 197 points.
NERVOUSNESS AHEAD OF TOMORROW’S DATA, BUYING IN GOLD BUT SELLING IN OIL, OPPORTUNITY IN SOUTH AFRICA
To gain an edge, this is what you need to know today.
Nervousness Ahead Of Tomorrow’s Data
There is nervousness in the stock market ahead of tomorrow’s CPI data. In early trades stocks are under pressure.
The momo crowd was buying yesterday but is selling today.
The smart money is inactive waiting for the data tomorrow.
Dollar
The dollar is weaker on concerns about the U. S. deficit.
Gold
Gold is priced in dollars and thus moves inverse to the dollar. Gold is moving higher on dollar weakness.
Oil
Oil is being sold ahead of API inventory data that will be released at 4:30 pm ET.
South Africa Opportunity
The ruling ANC party has ordered President Zuma to resign. The party is preparing for Cyril Ramaphosa to take power. Zuma has refused to resign. In the long run the resignation of Zuma will be good for South African stocks.
If this situation becomes worse and South African stocks fall, this will be a buying opportunity.
South Africa is covered in ZYX Emerging. Looking forward, due to dollar weakness, investors may find more lucrative opportunities in places like South Africa.
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 indeterminable due to extraordinary amount of noise in the data but expect the market to open lower.
Interest rates and bonds are range bound.
Gold futures are at $1328, silver futures are at $16.51, and oil futures are $58.72.
S&P 500 resistance levels are 2661, 2688 and 2700; support levels are 2631, 2615, and 2594.
DJIA futures are down 139 points.
SUCCESSFUL RETEST FOR A BULLISH ‘W’ PATTERN, SMART MONEY WAITING FOR KEY DATA POINT DUE WEDNESDAY
To gain an edge, this is what you need to know today.
W Pattern
Previously we have provided you with two different scenarios, a potential bullish W pattern and a potential bearish break.
Please click here for the chart previously provided. We previously wrote:
Probabilities not certainties
It is high time to remind investors of Arora’s Second Law Of Investing, ‘No one knows with certainty what is going to happen next.’ The best way to handle uncertainty is to think in terms of probabilities.
The probability of a bullish W pattern forming is significantly higher than a bearish break.
So far, there is a successful retest and a potential W pattern seems to be forming. However at this time the W pattern is not confirmed and there is a 30% probability of market going down again over the next two weeks.
There is a 50% probability of W pattern being confirmed over the next two weeks.
Smart Money And Momo Crowd Actions
On Friday when the market was down 700 points, the momo crowd was aggressively selling but the smart money was buying into the weakness. This morning in the early trade, the momo crowd is aggressively buying. The smart money is inactive.
Smart Money Waiting For Wednesday
From a fundamental perspective, the reason for the downdraft is specter of inflation.
On Wednesday morning at 8:30 am ET Consumer Price Index (CPI) will be released. Smart money appears to be waiting for this data before acting.
Gold
After selling gold into weakness over the last week, the momo crowd is being to buy gold as it crosses $1320 on the upside. Last week we saw the smart money buying under $1313 but is now inactive.
Oil
Some of the selling last week in oil was due to margin calls. Now that pressure is lifting and oil is rebounding.
OPEC has issued a new report warning about the booming shale production. For the time being oil traders are ignoring this report and buying but such buying may not last.
Technical Patterns
Mainland China shares are forming a Megaphone Top. This is bearish. ETF of interest is ASHR. Please note that in ZYX Emerging Mainland China was downgraded prior to the recent big move down.
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 indeterminable due to too much noise in the data, however expect the market to open much higher.
The dollar is slightly weaker.
Bonds and interest rates are range bound.
Gold futures are at $1321, silver futures are at $16.36, and oil futures are $60.44.
S&P 500 resistance levels are 2631, 2661 and 2688; support levels are 2615, 2594, and 2550.
DJIA futures are up 123 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 19% – 30% and short to medium-term hedges of 15% – 25% and very short term hedges of 10%.
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