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.
CONSUMERS GO ON A SPENDING SPREE — INDICATIONS FOR A GOOD CHRISTMAS
To gain an edge, this is what you need to know today.
Spending Spree
Please click here for a chart of large bank ETF (KBE).
Note the following:
- It is very important for investors to understand that markets always have cross currents. Sometimes cross currents are more pronounced than other times, as is the case now.
- A big mistake we see many investors make is that they get fixated on one set of data that supports their view and ignore the cross currents. This is the biggest cause of losses for many investors.
- On the negative side, the chart shows that bank stocks are not moving up.
- The chart shows that banks just reported excellent earnings. The bank stocks moved down on excellent earnings because of concerns expressed by banks about the future of the economy.
- There is a heightened concern about consumers not being able to repay the debt they are taking on such as on credit cards.
- On the positive side, consumers have gone on a spending spree.In September, Retail Sales Ex-auto came at 1.5% vs. 0.3% consensus. This is an extremely strong number. Typically we exclude autos from our analysis because auto numbers are highly volatile and hinder projections.During this period, automotive sales have also been very strong. Retail Sales including autos came at 1.9% vs. 0.6% consensus.
- Consumers are 70% of the U. S. economy. Therefore it is important to pay attention to retail sales.
- The inference from consumers spending this heavily in September is that the all-important Christmas season may turn out to be excellent.
- In contrast to Retail Sales, Industrial Production and Capacity Utilization data reported this morning were weak.Industrial Production came at -0.6% vs. +0.6% consensus. This is a big miss.Capacity Utilization came at 71.5% vs. 71.9% consensus.
- The sum total of the foregoing is that as positive as retail sales are, investors should not get carried away by aggressively buying stocks on this data.
Option Expiration
Option expiration appears to be putting pressure on the upside.
Vaccine Optimism
Pfizer (PFE) along with its partner BioNTech (BNTX) appears to be on track to apply for Emergency Use Authorization by late November. This is causing optimism.
Trump And Pelosi On The Same Side
Bulls are excited that Trump and Pelosi are on the same side — they both want to borrow heavily and give free money to even those who do not need it.
Short Squeeze
Today is Friday and options expiration day. Short squeezes to the upside are common on such days. Such short squeezes tend to reverse in the following week.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 (To see the locked content, please take a 30 day free trial) stocks in the early trade. Smart money is🔒.
Gold
The momo crowd is 🔒 gold in the early trade. Smart money is 🔒.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is 🔒 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 🔒. 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 $1911, silver futures are at $24.51, and oil futures are $40.89.
S&P 500 futures resistance levels are 3520, 3600 and 3630: support levels are 3460, 3420 and 3390.
DJIA futures are up 133 points.
Protection Bands and What To Do Now?
It is important for investors to look ahead and not in the rearview 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.
WHO WARNING, JOBLESS CLAIMS HIGHEST SINCE AUGUST, MOMO CAN’T BELIEVE IT
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) which represents stock market benchmark index (SPX).
Note the following:
- The chart shows the Arora signal given at 11:58 am that smart money was selling.
- Even though the market has fallen, it is still above the breakout line.
- For any technical significance, the market will have to drop below the breakout line and subsequently be unable to make a high above the high of three days ago. Investors should keep a careful watch.
- RSI is reflecting the price pattern and thus not giving any meaningful information.
- The chart shows that the volume is lower. This indicates a lack of conviction in both up and down moves.
WHO Warning
WHO is warning that deaths from coronavirus could hit five times the peak in April.
Even though the market has ignored rising coronavirus deaths, prudent investors should stay concerned.
Jobless Claims
Initial Jobless Claims came at 898K vs. 830K consensus. This is the highest number since August.
For those who have been reading the Morning Capsule, this higher number is not a surprise. The Arora Report take is proving spot-on. However, Wall Street and economists are surprised. The word most commonly being used to describe this data is ‘unexpected.’
Momo Can’t Believe It
The momo crowd has developed a diehard belief that momo stocks grow to the sky and never go down. Fastly (FSLY) has been one of the most favorite momo stocks. In the prior quarter, FSLY reported earnings worse than the consensus and much worse than the whisper numbers. The stock dropped. The momo crowd saw the drop as a buying opportunity and ran the stock up to new highs. Yesterday the momo crowd was buying this stock very aggressively during the day. Why was the stock rising? The reason for the stock rise was the belief ‘it always goes up.’ After hours, FSLY gave a view of Q3 revenues of $70 – $71 million vs. consensus of $74.77 million. This is not a big difference but the stock dropped 27%.
The momo crowd can’t believe that their favorite stock fell 27%. What has the momo crowd learned from this experience? They are doubling up on momo stocks to make up for their losses on FSLY.
Rejoice! The takeover of the gambling mentality of the momo crowd is now complete.
Momo Crowd And Smart Money In Stocks
The momo crowd is 🔒 in the early trade. Smart money is 🔒.
Gold
The momo crowd is 🔒 in the early trade. Smart money is 🔒.
The momo crowd is 🔒silver in the early trade. Smart money is 🔒.
For longer-term, please see gold and silver ratings.
Oil
API showed a draw in crude oil of 5.421M barrels vs. 2.8M barrels consensus. The data is bullish but oil is being pulled down on virus concerns.
The momo crowd is 🔒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 🔒. 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 $1897, silver futures are at $23.79, and oil futures are $39.63.
S&P 500 futures resistance levels are 3460, 3520 and 3600: support levels are 3420, 3390 and 3320.
DJIA futures are down 346 points.
THE TRADER MAGNET PROVING POWERFUL, UGLY INFLATION DATA
To gain an edge, this is what you need to know today.
The Trader Magnet
Please click here for a chart of S&P 500 ETF (SPY) which represents the stock market benchmark index (SPX).
Note the following:
- The chart shows that the market has decisively broken above the breakout line.
- The chart shows that the old high, which is not far away, is acting as a magnet for traders.
- This magnet is likely the reason behind heavy call option buying by someone large. In August it was revealed that the buyer in a similar situation was SoftBank (SFTBY).
- The option buying led to gamma hedging. Please see a prior Morning Capsule.
- Option expiration is this Friday.
- Gamma hedging tends to accelerate before the option expiration if there are big moves in the stocks.
- In plain English, due to the mechanics of the options and someone willing to risk big dollars, the fuel is there for a major blast off to the magnet. Will someone light the match?
Ugly Inflation Data
Core Producer Price Index (PPI) came at 0.4% vs. 0.3% consensus.
Headline PPI came at 0.4% vs. 0.1% consensus.
This is ugly data. Inflation is clearly happening at the producer level. Will producers pass on this inflation to consumers? This is an open question.
The prevailing wisdom has been that there is no inflation and for this reason, excessive borrowing and excessive money printing is a free lunch. Those investors who have been around know that there is no free lunch. Ultimately there will be a price pay for what our leaders are doing now. For this reason, investors should not become complacent and make sure they have access to independent reliable analysis.
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 🔒.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is 🔒 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 🔒. 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 $1913, silver futures are at $24.66, and oil futures are $40.61.
S&P 500 futures resistance levels are 3520, 3600 and 3630: support levels are 3460, 3420 and 3390.
DJIA futures are up 92 points.
GAMMA HEDGING RUNS UP THE MARKET, VACCINE TRIAL PAUSE, EARNINGS
To gain an edge, this is what you need to know today.
Gamma Hedging
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart compares QQQ with Cboe NASDAQ 100 Volatility Index (VXN).
- Most investors are familiar with the volatility index (VIX). VIX, also known as the ‘Fear Gage,’ is based on S&P 500 (SPX) options. VXN is similar but is calculated on Nasdaq 100 (NDX).
- QQQ is an ETF that represents NDX.
- The normal behavior is for VXN to go down when QQQ goes up.
- The chart shows that yesterday VXN went up along with QQQ. This is abnormal behavior.
- This abnormal behavior is likely caused by gamma hedging.
- Gamma hedging is a sophisticated technique to hedge risks from options when the underlying market moves rapidly.
- In plain English, somebody bought extremely aggressively call options on tech stocks with the aim of running tech stocks up by their own buying. Market makers were likely forced to hedge by buying stocks to cover their risks.
- This behavior is similar to what caused the run-up in tech stocks in August and the ultimate swoon in September. At that time, the buyer of the options was reportedly SoftBank (SFTBY).
New Buying From Europe
It appears that aggressive new buying was coming from Europe in tech stocks starting about 4:00 am ET this morning.
Vaccine Trial
J&J (JNJ) has paused its vaccine trial due to the illness of a patient.
Earnings
The earnings season has started. JPMorgan (JPM) and Citigroup (C) earnings are good.
Big Events
Apple (AAPL) is introducing iPhone 12.
Amazon (AMZN) Prime Day is underway.
CPI
Core CPI came at 0.2% vs. 0.2% consensus.
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 🔒.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is 🔒 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 🔒. 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 $1906, silver futures are at $24.51, and oil futures are $40.22.
S&P 500 futures resistance levels are 3600 and 3630: support levels are 3460, 3420 and 3390.
DJIA futures are down 182 points.
WALL STREET FRONTRUNS THE ELECTION, CHINA STOPS YUAN’S RISE
To gain an edge, this is what you need to know today.
Frontrunning
As a reminder, we are politically neutral. Our sole job is to help investors.
Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark index (SPX).
Note the following:
- The chart compares SPY to solar energy ETF (TAN) and oil and gas ETF (XLE).
- XLE is dominated by big oil companies such as (XOM) and (CVX).
- For prudent investors, it is important to see what Wall Street is doing with its money and not what it is saying to do with your money.
- The chart shows that over a one-month period, solar stocks have outperformed oil stocks by about 51%.
- This outperformance is huge and not normal.
- Oil stocks will benefit from a potential Republican sweep that nobody is talking about.
- Solar power will benefit greatly by a Democratic sweep.
- Solar power will benefit to a lesser degree if Biden wins and Republicans hold on to the Senate.
- The 51% outperformance by solar stocks indicates that Wall Street is now firmly in the camp of a Democratic sweep.
- It is worth reminding that in 2016 Wall Street was firmly predicting a Clinton win. The Arora Report was a rarity in predicting a Trump win.
- As a note of caution, even with a Democratic sweep, fundamentals do not justify the amount of rise in solar stocks.
China Stops Yuan Rise
In the long run, a strong currency is the hallmark of a strong nation. The U. S. dollar came to be known as ‘King Dollar’ due to the strength of the United States. Going forward, the battle is raging between the U. S. and China to be the number one in the world. While our leaders have been foolishly doing everything they can to weaken the dollar, China has been playing the currency game very smartly. Yuan has been rising. However, the rise of the yuan hurts China’s exports in the short term. China is now taking steps to slow down the yuan’s rise but is stopping short of halting the yuan’s rise.
Stimulus
Pelosi and Trump continue to bicker over stimulus even though Trump has pretty much given in to Pelosi at this point. There are also reports that Trump wants to borrow even more than Pelosi to have a Republican stimulus package bigger than the Democrats stimulus package.
The momo crowd is excited about the prospect of more heavy borrowing.
Fortunately, there are some Republican Senators who are not coming on board as they do not see the need for heavy borrowing for a bigger stimulus package at a time when the stock market is rising and the economy is doing well with the expectation of certain sectors.
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 🔒.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is🔒 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🔒. 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 slightly 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 $1926. silver futures are at $25.17, and oil futures are $40.02.
S&P 500 futures resistance levels are 3520, 3600 and 3630: support levels are 3460, 3420 and 3390.
DJIA futures are up 64 points.
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