WEEKLY MARKET DIGEST: THE SMART MONEY SLAMS GOLD, COPPER AND OIL BUT ALSO SELLS STOCKS LIGHTLY $DIA $GLD $QQQ $SLV $SPY $TBF $TBT $USO

WEEKLY MARKET DIGEST: THE SMART MONEY SLAMS GOLD, COPPER AND OIL BUT ALSO SELLS STOCKS LIGHTLY $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.

JOBS REPORT, OIL CRUSHED, GOLD ON CONTAGION, HEALTH BILL, FRENCH ELECTION

This is what you need to know today.

Jobs Report

Markets pay more attention to jobs report than any other economic indicator.  Non-Farm Private Payrolls came at 194K vs. 180K consensus.  Higher the number, the better the economy.

Unemployment Rate fell to 4.4%, the lowest rate since 2007 before the financial crisis. 

Oil Crushed

Oil fell yesterday and was crushed over night in Asia.  Then it recovered as bargain hunters stepped in.  At one point oil fell as low as $43.76 below the major support region of $44 – $45.  Then it recovered to $45.90 on bargain hunting.  Here are the reasons behind the oil fall.

  • Substantial hedging activity by Pemex, the Mexican state owned petroleum company, was putting pressure on oil prices.
  • The immediate trigger was the wire report that OPEC members are not serious about extending production cuts to the second half of 2017.
  • There have been some vey weak numbers coming out of China causing concern about China’s economy.
  • EIA report that came out on Wednesday showed an inventory build larger than the consensus.
  • Short selling by trend following technical traders exaggerated the down move.

In our analysis, strong jobs report should help oil recover provided there are no other new factors.  Those who like buying when something is low may consider stepping into some oil related investments if their portfolio is underweighted in energy with the full knowledge that the risk here is higher than normal.  We will be doing separate posts on specific investments that are now in the buy zones in ZYX Buy and ZYX Global.

Iron Ore

Iron ore has been crushed this week mostly on Chinese selling.  In Singapore iron ore lost about 12% this week, the biggest loss since November.  As a full disclosure ZYX Short  has a short position in an iron ore miner.  The position is now well within the target zone and the plan is to take more profits.  There will be a separate post with specific details.

China

Concerns about China are mounting.  There will be a specific post on China related investments in ZYX Emerging and on a special situation in ZYX Global.

Contagion Fears Help Gold

Often gold and oil move together.  This happens only when the reason behind the move is inflation concerns.

Yesterday’s sharp move down in oil and big loss in iron ore led to fear of contagion in trading circles.  Gold, yen and bonds are considered safe havens.  Money rushed into all three as oil was aggressively sold in Asia.

Given that gold is technically oversold and near a support zone of $1220 – $1226, this was a perfect set up for a rally.  We had told you in advance of the recent gold fall that there was 70% probability of gold fall to this support zone and it actually happened.  Please see SIGNAL QUALITATIVE: GOLD KEY SUPPORT RESISTANCE ZONES AND MONEY FLOWS.

After this morning’s strong employment report, the bloom is off the rose.  Strong employment report means that probability of contagion has lessened.  Further, strong employment report is supportive of the Fed raising interest rates.  At this time gold does not like higher interest rates.

Healthcare Bill

The healthcare bill has finally passed the House.  Markets yawned under the assumption that the Senate will rewrite it.

In our analysis, this is positive for the stock market and negative for gold in the medium to long-term.  The reason is that this is a step forward to tax reform.

French Election

The second round of French election will be held on Sunday.  Markets have assumed that Macron will win.  He is keeping a 20 point lead in polls.  Macron is pro Euro going against anti-euro Le Pen.  If Le Pen were to win, there is high probability of a blood bath Monday.

Fed Speak

Fed Chair Yellen will speak at 1:30 pm ET.  Fed Vice-Chair Fischer will speak at 11:30 am ET.

If opportunities arise out of these speeches, we will do separate posts.

Technical Patterns

Several junior gold miner stocks are tracing a bearish Symmetrical Continuation Triangle.  ETF of interest is GDXJ.

Several small cap stocks are tracing a bullish Hammer.  ETF of interest is IWM.

This is powerful information and many investors use this to enter trades in addition to our official signals.  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.

Dollar had weakened on falling oil but has strengthened on strong jobs report.

Interest rates are ticking down and bonds are ticking up.

Gold futures are at $1230, silver futures are at $16.33, and oil futures are $45.46.

S&P 500 resistance levels are 2400, 2450 and 2500; support levels are 2363, 2334, and 2300.

DJIA futures are down 3  points.

HEALTH BILL, FED SEES SLOWDOWN AS TEMPORARY, THE SMART MONEY SLAMS GOLD AND COPPER BUT ALSO SELLS STOCKS LIGHTLY

This is what you need to know today.

Healthcare Bill

Republican leadership is expressing confidence that they have the votes to pass the healthcare bill in the House.  There are reports that the vote is scheduled for 10:00 am.  This may turn out to be a market moving event.

Fed Sees Slowdown Temporary

Fed left rates unchanged.  Fed sees the current slowdown as temporary and sees a stronger economy later in the year.

This is exactly what we have been telling you every time there has been a weak piece of economic data over the last couple of months. It is nice to see the Fed with all its horse power of some of the smartest economists coming to the same conclusion, albeit in a delayed fashion, what we have been concluding in real time.

This is good news for stocks in the longer term but does not preclude a near term pullback.  If a pullback occurs, barring any change in the macro picture, it is likely to be a buying opportunity.

The Smart Money Lightly Sells Stocks

Yesterday the ‘smart money’ was lightly selling stocks.  This is noteworthy because since Trump’s election, for the most part, the smart money has not been selling stocks.

We will keep a close eye on the smart money and share with you our conclusions as more data develops.

The Smart Money Slams Gold

After the Fed released its statement, the momo crowd started aggressively buying gold.  The Fed statement was very dovish and for this reason buying gold made sense.  Historically it is common behavior on the part of the momo crowd to buy gold after a dovish statement by the Fed.  Most of the time such buying works for a 1 – 3% gain but not yesterday.  Prior to the Fed’s announcement, gold had broken the support at $1250.  After the Fed’s announcement, the momo crowds’ buying lifted gold to over $1254. At that point selling by the smart money kicked in and continued to intensify in the afternoon.

The smart money selling in gold as described above is noteworthy because historically the smart money lets the momo crowd run up gold 1 – 3% and does not get in the way.  This indicates that this time the smart money has a higher conviction of gold going lower.

Iron Ore Plunged

Iron ore is plunging.  Futures in China ended the session limit down.  As a full disclosure ZYX Short has a position in an iron miner.

Nickle is falling 2%.

The smart money slams copper

Traditionally copper is known as ‘Doctor Copper’ because it used to be a good indicator of the economy.  Good economy led to a lot of new building and new building uses copper.  However there is not that much new building going on in the developed world these days.  For this reason copper is now mostly an indicator of the economy of China and the developing world.

Yesterday we shared with you that copper was being sold in China.  During the day in the United States, the smart money slammed copper hard.  For the day copper was down 4.5%.

As a full disclosure, ZYX Short has a short position in copper.

Technical Patterns

Several regional banks are tracing a bullish Engulfing Line. ETF of interest is KRE.

Brazilian stocks are tracing a bearish Inside Bar.  ETF of interest is EWZ.

This is powerful information and many investors use this to enter trades in addition to our official signals.  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 suspended because we cannot confidently predict the outcome of the healthcare bill and the market reaction to it. Without consideration for the healthcare bill the indicator is positive.

Interest rates are ticking up and bonds are ticking down.

Currencies are range bound.

Gold futures are at $1234, silver futures are at $16.51, and oil futures are $47.11.

S&P 500 resistance levels are 2400, 2450 and 2500; support levels are 2363, 2334, and 2300.

DJIA futures are up 57  points.

FED DAY, STRONG ADP, GOLD AT SUPPORT, POSITIVE OPEC DATA FAILS TO LIFT OIL

This is what you need to know today.

Fed Day

The Fed will announce its rate decision at 2:00 pm ET.  This has the potential to be a market moving event.  Please stay extra alert in case there are opportunities.

In addition to interest rates, we will be looking for clues on how the Fed plans to wind down its $4 trillion balance sheet.

Strong ADP

ADP Employment change came at 177K vs. 170K consensus.  ADP is the largest private payroll processor in the United States.  It uses its data to give investors an advanced look at the mother of all numbers — employment report to be released on Friday.

ADP data shows that employment continues to be strong.

Gold At Support

Gold is trading around support level of $1253.  Back on April 17, 2017, when gold was jumping and most gold gurus were predicting higher prices, we told you that the ‘smart money’ was selling gold.  The smart money has been proven right as is usually the case.  We also changed our very, very short-term gold ratings to Mild Negative.  If you followed the information we provided, you were able to get out of a long trade near the top and if you went short you have nice profits.

After the Fed data, we will update  SIGNAL QUALITATIVE: GOLD KEY SUPPORT RESISTANCE ZONES AND MONEY FLOWS.

Long-term investors in gold should be paying attention to changes in the gold allocation level which is periodically updated under SIGNAL QUALITATIVE: CURRENT GOLD AND SILVER RATINGS, AND ALLOCATION, REVIEWED DAILY AFTER THE ORIGINAL PUBLICATION.

Historical pattern is that before the Fed rate decision, the smart money is inactive and the momo crowd buys.  This is the case so far this morning.

Positive Data From OPEC Fails To Lift Oil

Output from OPEC fell by 40K barrels a day from a month earlier.  Initially oil jumped on the news and broke out of the resistance around $48 only to fall back again under intense selling pressure that came on after the breakout.  This is an example where the technical crowd bought on the breakout but the smart money took advantage of the technical crowd and sold into the strength.  As is usually the case, the breakout was false and the technical crowd lost money.

Copper

There is selling in copper in China.

Technical Patterns

Many biotechs are tracing a bearish Engulfing Line.  ETFs of interest are XBI, LABD and LABU.

Many retail stocks are tracing an Outside Bar.  This is bullish. ETF of interest is XRT.

This is powerful information and many investors use this to enter trades in addition to our official signals.  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.

Dollar is stronger and yen is weaker.

Interest rates and bonds are range bound.

Gold futures are at $1253, silver futures are at $16.73, and oil futures are $47.92.

S&P 500 resistance levels are 2400, 2450 and 2500; support levels are 2363, 2334, and 2300.

DJIA futures are down 22  points.

TRUMP CALL FOR BANK BREAKUP, SELL CALL ON TECHS, FOMC MEETING, SMART MONEY SELLING IN GOLD, OIL RUMORS

This is what you need to know today.

Trump Call For Bank Breakup

Trump has stated that he is thinking of breaking up big banks.

Market should have fallen on those comments but did not.  This indicates buying demand by institutions on even the slightest pullback.

Sell Call On Techs

Technology stocks were extremely strong yesterday.  Some astute market observers, whom we respect, are calling to sell techs into the strength.

This is not our call for the moment because we take a portfolio approach to attain high risk adjusted returns.  Our portfolios are well diversified and we are holding a fair amount of cash and hedges appropriate for the high valuations in the markets at this time.  Having said that, those investors who are not well diversified and heavily weighted in tech may consider lightening up.

We will be making marginal changes in some of our technology holdings.  Separate posts will be forthcoming as appropriate.

FOMC

Federal Open Market Committee (FOMC) is meeting for two days to decide on interest rate policy. We will be reading the tea leaves for interest rate hikes.

The ‘Smart Money’ Selling Gold

Over the last few days we have been telling you about the ‘smart money’ selling gold.  For awhile momo crowd buying was able to contain the selling.  Yesterday the momo crowd buying was not enough to contain selling by the smart money.

As of this writing, gold is at $1253.  This is the upper band of the support zone.  Expectation is that momo crowd will attempt to make a stand here.  Over the last hour, the smart money has stopped, perhaps in anticipation of buying coming in at support.

Oil Rumors

There are unconfirmed rumors in trading circles that OPEC will agree to further cuts in the second half of the year.  Such rumors are supporting oil prices.

Technical Patterns

Several junior gold miners are tracing a Symmetrical Continuation Triangle.  This is bearish.  ETF of interest is GDXJ.

Several consumer discretionary stocks had an Inside Day. This is bearish.  ETF of interest is XLY

This is powerful information and many investors use this to enter trades in addition to our official signals.  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.

Interest rates, bonds, and currencies are range bound.

Gold futures are at $1253, silver futures are at $16.86, and oil futures are $48.90.

S&P 500 resistance levels are 2400, 2450 and 2500; support levels are 2363, 2334, and 2300.

DJIA futures are  down 7  points.

HIGHER SECURITY ON ARORA SITE UPGRADE, DEAL TO FUND THE GOVERNMENT, LOWER PHYSICAL GOLD DEMAND IN INDIA,

Due to a higher security upgrade, you may need to login. If difficulty, please clear cache in the browser. After you login, scroll down below sticky posts to see this Morning Capsule. After the first login, the site behavior should be back to normal.

This is what you need to know today.

Deal To Fund The Government

Congressional leaders have reached a bipartisan agreement to fund the government through September 30th.  The $1.1 trillion spending bill includes only a $12.5 billion defense increase and $1.5 billion for boarder security.

In our analysis, the deal rejects Trump’s agenda and is mostly in line with Democratic agenda.  It appears that Republicans gave into Democrats so that they can move on to the tax bill and the healthcare bill.

Setting politics aside, this is good news for the stock market.

Personal Income And Spending

The U. S. economy is about 70% fueled by consumers. For this reason we pay special attention to personal income and personal spending.

Personal Income came at 0.2% vs. 0.3% consensus.

Personal Spending came at 0.1% vs. 0.1% consensus.

Lower Physical Gold Demand In India

India is often the biggest or the second biggest source of physical demand of gold in the world.  The new proprietary data we have just compiled shows that over the last two weeks demand for gold in India has been weakening.

There is light selling by the ‘smart money’ in both gold and silver.  However the momo crowd continues to buy.

Oil Breaks Support

Oil has just broken support at $49.  The immediate cause appears to be good earnings from oil majors.

The breaking news is that an oil tanker has been seized after a gun battle in Libya.  The news has not reached trading circles as of this writing and may have an impact later on.

China Manufacturing

China Manufacturing Purchasing Managers Index fell to 51.2 vs. 51.8 consensus.  Of note is that the prior number was 51.8, a five year high.  This number has been largely responsible for Trump inflation trade in many commodities and material related stocks.

Our insight is that the weakening of this number will cause a shadow of a doubt on Trump inflation trade.

Technical Patterns

Many industrial stocks have traced a Bearish Engulfing Line. ETF of interest is XLI.

Many consumer discretionary stocks have traced a Bearish Engulfing Line.  ETF of interest is XLY.

Many Japanese stocks are tracing a Bearish Island Top.  ETF of interest is EWJ.

This is powerful information and many investors use this to enter trades in addition to our official signals.  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 start out positive.

Interest rates, bonds and currencies are range bound.

Gold futures are at $1264, silver futures are at $17.14, and oil futures are $48.93.

S&P 500 resistance levels are 2400, 2450 and 2500; support levels are 2363, 2334, and 2300.

DJIA futures are up 35 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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