WEEKLY STOCK MARKET DIGEST: A TECHNICAL INFLECTION POINT IN THE STOCK MARKET, INFLATION RUNS HOTTER $DJIA $SPX $QQQ $GLD $SLV $USO

WEEKLY STOCK MARKET DIGEST: A TECHNICAL INFLECTION POINT IN THE STOCK MARKET, INFLATION RUNS HOTTER $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.

A TECHNICAL INFLECTION POINT IN THE STOCK MARKET, INFLATION RUNS HOTTER

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

The Chart

Please click here for a chart of S&P 500 ETF (SPY) that represents benchmark stock market index (SPX).

Note the following:

  • The chart shows in yellow color the line that touches February stock market high before the coronavirus start.
  • The chart shows that the yellow line also represents the breakout point of the stock market in August.
  • The chart shows that now there have been two closes below this line.
  • The chart shows the trend line that marked the stock market rise since June.
  • The chart shows that after the break below the trendline, the stock market has stayed below the trendline.
  • In the premarket, there is an attempt to move the stock market up above the trendline.  Will this attempt succeed? From a technical perspective, investors should keep a careful watch on the close today.
  • The last RSI attempt to turn up failed at the close yesterday.
  • In the premarket there is aggressive momo crowd buying. If the buying is sustained, RSI may move up. Otherwise it will send a negative signal.
  • The chart shows that the volume continues to be higher.  This is typical of inflection points.

Inflation Runs Hotter

In yesterday’s Morning Capsule we shared with you:

Core PPI came at 0.4% vs. 0.2% consensus.  This indicates that at the producer level inflation is running hotter than expected. Of course the government insists that there is no inflation.

This morning the Consumer Price Index (CPI) was released.  The headline number came at 0.4% month over month vs. 0.3%  consensus.

Core CPI excluding food and energy rose 0.4% vs. 0.2% consensus.  Food and energy are important but they are volatile. For this reason it makes sense to look at Core CPI.

Year over year Core CPI is up 1.7%.  The Fed  has said its target is 2% and they will allow inflation to run hotter.  In our analysis the Fed may allow inflation to run as high as 2.4% before acting.

Will the government continue to maintain that there is no inflation or will they change the way it is measured?  As we have written before, the way the government measures inflation is flawed.

Momo Crowd And Smart Money In Stocks

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

Gold

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

Unlike many prior days, momo crowd 🔒  in silver is mild and not aggressive. Smart money is 🔒 in silver.

For longer term, please see gold and silver ratings.

Oil

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

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 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 $1959, silver futures are at $27.12, and oil futures are $37.14.

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

DJIA futures are up 110 points.

Protection Bands and What To Do Now?

It is important for investors to look ahead and not in the rear view mirror.

Consider continuing to hold existing positions. Based on individual risk preference, consider holding 🔒 in cash or treasury bills or short term bond funds or allocated to short term tactical trades and short to medium-term hedges of 🔒 and short term hedges of 🔒. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges.  The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive.  If you do not hedge, total cash level should be more than stated above but significantly less than cash plus hedges.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

 

MOMO BUYS STOCKS ON MORE PEOPLE LOSING JOBS, ECB HOLDS STEADY

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

Jobless Claims

Weekly Initial Jobless Claims came at 884K vs. 813K consensus.  In plain English, this means that more people lost jobs than expected.  This is a leading indicator and carries heavy weight in our models.

The Chart

Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

  • There was a strong rally yesterday.
  • There is a strong rally this morning after higher than expected jobless claims.
  • The market still has not moved above the trendline shown on the chart.
  • The trendline should offer some resistance.
  • RSI has moved over its moving average. This is giving a buy signal.
  • The volume yesterday was higher than typical recent up days.  This is a positive.

ECB

The European Central Bank is holding interest rates and bond buying steady.  There were no surprises in the meeting. Economic rebound is on its way in Europe.

Producer Price Index (PPI)

Core PPI came at 0.4% vs. 0.2% consensus.  This indicates that at the producer level inflation is running hotter than expected. Of course the government insists that there is no inflation.

Momo Crowd And Smart Money In Stocks

The momo crowd was selling stocks yesterday evening and early this morning. This indicated that the momo crowd did not believe in yesterday’s rally.  However after the data came showing that more people than expected lost their jobs, the momo started aggressively buying stocks.  The reasoning is that the more people who lose their jobs, the better  the changes for the government to borrow more to come up with a stimulus package and the Fed to print more money.

Smart money is inactive.

Gold

Gold is moving higher on a weaker dollar.

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

The momo crowd buying is especially aggressive in silver in the early trade.

For longer term, please see gold and silver ratings.

Oil

API data showed crude inventories build of 2.97M barrels vs. consensus of a draw of 1.34M barrels. This data is bearish but the momo crowd is buying oil on weak jobless claims.

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 momo crowd to push momo stocks 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 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 $ 1969, silver futures are at $27.67, and oil futures are $ 37.81.

S&P 500 futures resistance levels are 3420, 3460 and 3520: support levels are 3390, 3320 and 3278.

DJIA futures are up 76 points.

VACCINE TRIAL HALTED — A NEW REASON TO RUN UP THE STOCK MARKET

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

The Chart

Please click here for a annotated chart of S&P 500 ETF (SPY).

Note the following:

  • RSI is flattening without reaching the oversold level shown on the chart.
  • During this entire rally, RSI never got oversold.
  • Investors ought to watch if the bounce carries the market above the trendline shown on the chart.
  • This is a good setup for a bounce.
  • In yesterday’s Afternoon Capsule we wrote:

    Typically three days of margin selling washes off  the weak hands and then stocks temporarily rise.

Vaccine Trial Halt

One of the most promising vaccines is being developed by AZN and the University of Oxford. The Phase 3 has been put on hold due to a suspected serious adverse reaction in a person in the U. K.

In vaccine development, such halts are common.

The trial is ongoing in India and has not faced any issues.

Right now the prevailing wisdom in the stock market is that there will be a vaccine.  The news is a reminder that there is not a 100% certainty of the success of a vaccine.

Another Reason For Momo To Buy Stocks

After initial weakness on the vaccine news, the momo crowd started aggressively buying stocks.  Given the recent drop in the momo stocks, there was a good technical setup for a bounce.  Their reasoning is that the market has runup, in large part, due to the stay at home stocks benefiting from coronavirus.   If there is no vaccine or a vaccine is delayed, stay at home stocks will benefit more.  Of course nobody thinks about the unsustainable valuations of these stay at home stocks.

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 buying gold in the early trade.  Smart money is inactive.

For longer term, please see gold and silver ratings.

Oil

The momo crowd is behaving like a yo-yo 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  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 $1944, silver futures are at $26.97, and oil futures are $37.20.

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

DJIA futures are up 257 points.

TRENDLINE BROKEN — RAISE CASH AND HEDGES, SMART MONEY SOLD INTO THE STRENGTH

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

Trendline Broken

Please click here for a chart of S&P 500 ETF (SPY).

Note the following:

  • We had previously shared this chart with you before the trendline was broken.  The objective was to wait for the trendline to break for confirmation.
  • The trendline is now broken.
  • The volume is higher on down days.
  • Consider raising cash and hedges. Please see ‘Protection Bands and What To Do Now?’ section below.

Option Gambit

Reports have surfaced that Masayoshi Son of SoftBank (SFTBY) of Japan may have orchestrated a one-way aggressive bullish bet using options on $50 billion worth of momo stocks.  It is not clear if SFTBY has already booked profits or they have more selling to do.

SFTBY seemed to have followed the classic momo strategy.

If SFTBY is done with selling, expect the market to bounce.  On the other hand if they have more selling to do they could push the market lower.

Vaccine Tease

Yesterday Trump teased that good data on a vaccine could be announced as early as October.  If true this is obviously a positive.

China Decoupling

Yesterday Trump talked about more China decoupling.  This is negative for the stock market.

Momo Crowd And Smart Money In Stocks

Yesterday evening, futures opened much higher with the momo crowd aggressively buying.  The reason the momo crowd was aggressively buying was Trump’s tease about a vaccine.  Smart money sold into the strength. The dance continued until about 2:30 am with momo buying and smart money selling.  After that, momo buying could not overcome smart money selling and futures fell out of bed.

The momo crowd is  buying in the early trade.  Smart money is inactive after aggressively selling earlier.

Gold

Trump’s comments about China decoupling are driving the dollar higher.  Gold is priced in dollars. As the dollar goes higher, gold falls.

It will be interesting to watch if some money starts flowing into gold from stocks.  It is not happening as of this writing.

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.

Markets

Our very, very short-term early stock market indicator is negative but can quickly flip positive on a short squeeze or if SFTBY is done selling.  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.

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 $1919, silver futures are at $26.52, and oil futures are $37.12.

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

DJIA futures are down 259 points.

 

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