By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Positive Sentiment
Please click here for a chart of Nvidia stock (NVDA).
Note the following:
- There is positive sentiment in the stock market in the early trade for a number of reasons explained below.
- The Morning Capsule is about the big picture, not an individual stock. The chart of Nvidia stock is being used to illustrate the point.
- The chart shows Nvidia’s 8.47% gain on aggressive investor buying ahead of earnings that will be released tomorrow after the close. We shared with you various factors related to Nvidia in the prior Morning Capsule before most of the big rise yesterday.
- The chart shows that Nvidia is up another 2.41% as of this writing in the premarket.
- The chart shows the big rise in Nvidia when it reported earnings last quarter. Investors are expecting a similar rise Wednesday after the close.
- The Arora Report very long term target on Nvidia was raised this morning. Other than that, there is no change in our prior call on Nvidia. We previously wrote:
In The Arora Report analysis, the demand for AI chips from Nvidia is far exceeding supply. As good as this sounds, the whisper numbers have moved up. Nvidia guided current quarter sales to $11B but whisper numbers are around $12B. A lot will also depend on what Nvidia guides for the current quarter that ends in October. Whisper numbers are around $12.5B.
- Historically, it is common for a high flying stock to fall after great earnings because even great earnings often do not match high whisper numbers. To persuade their followers to buy Nvidia stock now before the earnings, momo gurus are preempting the possibility of Nvidia earnings coming below the high whisper numbers with a new mantra. The new mantra is even if Nvidia earnings are less than whisper numbers, it does not matter because the artificial intelligence frenzy will ultimately run the stock higher.
- Wall Street is positioning for another leg up in the artificial intelligence frenzy rally. Understanding positioning gives investors an edge. For those who are interested in learning about positioning, listen to the podcast titled “Market Mechanics: Positioning.”
- Investors are also excited about stocks in Hong Kong rising about 2% within minutes.
- In The Arora Report analysis, the 2% rise in Hong Kong stocks was most likely caused by the Chinese Plunge Protection Team (PPT) buying stocks through state entities. PPT is believed to be a secretive team inside the Chinese government with the responsibility to buy stocks to stop them from plunging. Chinese learned from the U.S. The U.S. government is also believed to have a secretive PPT to buy stocks as needed.
- Adding to the positive sentiment is the fact that the Chinese government sold dollars through banks. The momo crowd likes anytime a foreign country or the U.S. government does something to weaken the dollar. The reason is that S&P 500 derives a large portion of its earnings from overseas. When the dollar weakens, it translates to higher earnings when converted into dollars.
- In The Arora Report analysis, a strong currency is the hallmark of a strong country. In our analysis, it is very myopic of the momo crowd to celebrate a weaker dollar. The long term interest of dollar based investors is in a stronger dollar, not a weaker dollar.
- On the earnings front, there are three important earnings:
- Macy’s (M) beat the consensus but is cautious about the future. The stock is falling 7.6% as of this writing in the premarket.
- Dick’s Sporting Goods (DKS) missed earnings. The stock is plunging over 20% as of this writing in the premarket.
- Lowe’s (LOW) beat the consensus. The stock is up 2.53% as of this writing in the premarket.
- S&P has cut the credit ratings of several U.S. banks including Keycorp (KEY) and Comerica (CMA).
- Perma bears are out in full force warning investors about rising yields, geopolitics, lower earnings, high national debt, potential rise in inflation again, hawkish Fed, and the risk from Powell’s upcoming speech at Jackson Hole on Friday. Perma bulls are responding by saying none of these negatives matter because artificial intelligence will boost productivity
- As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the protection band.
BRICS Attack The Dollar
BRICS is a bloc consisting of Brazil, Russia, India, China, and South Africa. BRICS are meeting in South Africa. President Ramaphosa of South Africa has invited leaders from 67 countries to attend the summit. Interestingly, the U.S. and its European allies were not invited.
The summit has two focuses:
- Expanding BRICS with 40 additional countries who want to join BRICS.
- Attacking the U.S. dollar to reduce the power of the U.S.
For all long term investors, it is important to allocate a part of the portfolio to emerging markets. The best way is to utilize the buy zones and ratings on 14 emerging countries that have been covered in ZYX Emerging from The Arora Report for 16 years. Investing in emerging markets is very different from investing in the U.S. Positions should be built slowly over a number of years.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are mixed in S&P 500 ETF SPY and Nasdaq 100 ETF QQQ.
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 🔒 in the early trade.
Gold
The momo crowd is 🔒 gold in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is 🔒 oil in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is range bound.
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 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 $1925, silver futures are at $23.40, and oil futures are at $79.98.
S&P 500 futures are trading at 4429 as of this writing. S&P 500 futures resistance levels are 4460, 4600, and 4713: support levels are 4400, 4318, and 4200.
DJIA futures are up 24 points.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding 🔒 in cash or Treasury bills 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, the 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.
Traditional 60/40 Portfolio
Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.
Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of five year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.
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Nigam Arora
Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.
Dr. Natasha Arora
Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.
