WEEKLY MARKET DIGEST: STRONG ECONOMIC GROWTH, DIWALI DEMAND FOR GOLD AND OIL PRESSURED $DIA $GLD $QQQ $SLV $SPY $TBF $TBT $USO

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 WEEKLY MARKET DIGEST: STRONG ECONOMIC GROWTH, DIWALI DEMAND FOR GOLD AND OIL PRESSURED $DIA $GLD $QQQ $SLV $SPY $TBF $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.

STRONG ECONOMIC GROWTH, MARKET REACTION AND MIXED EARNINGS

This is what you need to know today.

Economic Growth

U. S. GDP came at 2.9% vs. 2.5% consensus.  In plain English this means that economic growth in the U. S. is stronger than the expectations.

Reaction To GDP

The most important information is to be gleaned by observing the reaction of various markets to the major news.  Here GDP is much stronger than expectations.  Let us observe how various markets reacted and how they should have reacted.

  • Gold fell to $1263.20 but should have fallen to around $1250.  Gold continues to be supported by physical demand from India for a couple more days.
  • Triple leveraged ETFs NUGT and DUST reacted in line with expectations as gold miners fell.
  • 10-year Treasuries are range bound around 129 13/32, they should have fallen below 129.
  • Euro bounced off the support at 1.09 but should have fallen below 1.09.
  • Yen is hanging around .0095 but should have fallen more.

The foregoing reactions indicate that institutional investors were already positioned for a number stronger than the consensus.

Earnings

This is the busiest week for earnings.  Earnings are the single best determinate of the future stock market prices.

So far earnings are mixed and thus provide no clear direction.

Markets

Our very, very short-term early stock market indicator is neutral but expect the market to be highly volatile as month end window dressing takes place.

Oil is range bound as OPEC conducts its technical meeting.

Natural gas is attempting a rally but is being met with short selling as it rallies.

Gold futures are at $1263, silver futures are at $17.59, and oil futures are $49.24.

S&P 500 resistance levels are 2132, 2150 and 2165; support levels are 2100, 2063, and 2038.

DJIA futures are up 24 points.

MARKET ACTION IN EARLY STAGES OF PREDICTING AN END TO CURRENT CENTRAL BANKS’ POLICIES

This is what you need to know today.

End Of Central Banks’ Policies

Market price action is in the early stages of predicting the end of current central banks’ policies.

Yields on U. S. Treasuries have persistently been hanging above 1.7% even when the economic data is weak.  Yields have risen to 1.83%.

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Yields on 10-year German bunds have risen five days in a row to 0.15%.

Yields on Spanish bonds have risen to 1.17%

Bank of Japan Governor Kuroda said that the bank may not buy 80 trillion yen of bonds as previously predicted.

The yields in the U. K. have surged to the highest level since Brexit.

Krone Surge And Oil

Norway’s currency krone surged after the central bank left rates unchanged, expectations were for a rate cut.  Krone is up 0.7% against the dollar, this is a big move for a currency.

Norway’s economy is heavily dependent on oil.

The central bank’s move indicates that the bank believes that the current oil rally is sustainable.

Brent crude oil has moved over $50.  WTI is still below $50.

An OPEC technical meeting is taking place tomorrow and also a meeting with non-OPEC countries on Saturday to generate specific proposals to implement supply cut backs.

Markets

Our very, very short-term early stock market indicator is neutral.

Gold continues to be supported by physical demand from India ahead of Diwali.

Industrial metals are higher.

Bonds are edging down.

Dollar is range bound.

Mexico’s peso is falling on the polls showing Trump ahead in Florida.

Gold futures are at $1270, silver futures are at $17.67, and oil futures are $49.42.

S&P 500 resistance levels are 2150, 2165 and 2180; support levels are 2132, 2120, and 2100.

DJIA futures are up 25 points.

STOCKS TO SLIDE AT THE OPEN ON CRUDE OIL AND TRUMP, DIWALI DEMAND FOR GOLD

This is what you need to know today.

Stocks

Correlation between stocks and crude oil is back.  Stocks are set to slide at the open on a fall in crude oil and Trump gaining strength in Florida.

Oil

API Inventories came at +4.8 million barrels vs. +2 million barrels consensus.  This is the largest inventory increase since December 2015.

EIA Data, which is considered more authoritative, will be released at 10:30 am ET.  Consensus is for an increase of 2 million barrels for oil.  This data may be a market moving event.

Trump

It is no secret that stock market wants Clinton to win.  Stocks have been taking comfort from Trump weakening in the polls. There is a new poll out that shows Trump with a 2 point lead in Florida when third party candidates are taken into account.  Florida is a battle ground state.

This new poll might be making some  market participant to think that Clinton victory is not a 100% sure thing.

Gold

Diwali is the major holiday in India, just like Christmas is in the United States.  The custom is to give and receive gifts including gold.  Prior to Diwali there is always a high demand for physical gold in India.

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Indians are astute buyers and tend to buy when prices are low.  Gold demand was subdued due to higher prices until this week.  Diwali is on October 30, 2016.  As Diwali gets closer, high physical gold demand is kicking in supporting gold prices.

Markets

Our very, very short-term early stock market indicator is negative.

Natural gas is falling out of bed as the last short squeeze is over.

Dollar is slightly weaker.

Interest rates and bonds are range bound.

Gold futures are at $1273, silver futures are at $17.70, and oil futures are $49.13.

S&P 500 resistance levels are 2150, 2165 and 2180; support levels are 2120, 2100, and 2063.

DJIA futures are down 80  points.

MIXED EARNINGS, COAL AND INDUSTRIAL METALS JUMP

This is what you need to know today.

Mixed Earnings

Earnings season is in full swing.  So far earnings are mixed and they are not providing any clear indication for future direction of stocks.

Coal Jumps

Coal prices are rocketing up.  The reason behind the rally is a prior order by Chinese government to coal miners in China to cut output equivalent  to 276 days of production from earlier 333 days.

As prices have rocketed up, the government has allowed some miners to increase output to cool the rise.  But in the market momentum has taken over.  Coal price at Qunhuangdao port in China has reached 650 yuan per ton, the highest level since July 2012.

Industrial Metals

The move up in coal is taking industrial metals up with it.  Zinc has surged to a five year high.  Aluminum, copper, nickel and iron ore are all rallying.

Currencies of resource rich countries such as Australia and South Africa are rallying.

Gold And Silver

There is strong buying by the momo crowd in gold and silver in sympathy with coal and industrial metals.  However smart money is inactive.

Natural Gas

Natural gas November contract has been falling and has now fallen to $2.80.  But December contract is at $3.20.  This is the widest discrepancy.  In plain English, natural gas is falling a lot right now but market expects a cold snap to move it much higher by December.

Markets

Our very, very short-term early stock market indicator is neutral.

Yuan is hitting a six year low and the lowest level ever in the offshore market.

Other currencies are range bound with dollar exhibiting slight strength.

Oil is trying to hold $50 support.

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Interest rates and bonds are range bound.

Gold futures are at $1268, silver futures are at $17.69, and oil futures are $50.24.

S&P 500 resistance levels are 2150, 2165 and 2180; support levels are 2132, 2120, and 2100.

DJIA futures are down 5  points.

BULLISH SENTIMENT ON STOCKS ON M&A WEEKEND, OIL PRESSURED BY STATEMENT FROM IRAQ AND EUROPEAN BONDS LIFT ON NEWS FROM SPAIN

This is what you need to know today.

Bullish Sentiment

There is bullish sentiment on stocks after a hectic M&A weekend.  The biggest one is T buying TWX. Both stocks are down on antitrust concerns.

AMTD is buying privately held Scottrade.  COL is buying BEAV. JPEP is merging with AMID.  A Chinese company is buying GNW at almost no premium.  Another Chinese company is taking a 25% stake in HLT.

Oil

Oil is falling on the news that Iraq wants to be exempt from any production freeze or cuts.

Saudi and Russia are trying to talk oil up by saying that the current down cycle is near an end.

Spain And European Bonds

Spain has been without a government.  The news is that the opposition socialist party is agreeing to abstain in the next vote on Mariano Rajoy’s attempt to become prime minister.  Spain is likely to have a government for the first time since December 2015.

European bonds are rallying on the news from Spain.

Gold

There is aggressive buying by the momo crowd in gold and silver.  Smart money is inactive.

Markets

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

Interest rates, bonds and currencies are range bound.

Gold futures are at $1271, silver futures are at $17.79, and oil futures are $50.44.

S&P 500 resistance levels are 2150, 2165 and 2180; support levels are 2132, 2120, and 2100.

DJIA futures are up 90 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 27 – 38% of assets in cash or treasury bills, and short to medium-term hedges of  25% and very short term hedges of 5%.

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