By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
AI Frenzy Shifts
Please click here for a chart comparing semiconductor ETF (SMH) and software ETF (IGV).
Note the following:
- The Arora Report previously shared with you that the next stage of AI would benefit software stocks. This is beginning to happen now.
- The chart shows software ETF IGV has moved up since the presidential election.
- The chart shows that IGV has outperformed semiconductor ETF SMH by about 10% since the election.
- The Arora Report algorithms show money is flowing out of semiconductors and into software.
- AI allows work processes to be totally reimagined compared to work processes of today. Work processes of today are implemented with legacy software. In The Arora Report analysis, it is an order of magnitude more efficient to use reimagined processes with AI native software.
- In The Arora Report analysis, there is a battle brewing among software companies for market share when it comes to AI capabilities. Legacy software companies have existing customers and cash to invest in AI. Legacy software companies are bolting on AI offerings. AI native software companies have an edge technologically. However, they do not have existing market share. Promising AI native software companies are privately held.
- The foregoing tells us that AI will end up decimating some software companies while others will go to new heights.
- Investors need to look forward. Right now, most investors who are investing in software companies are looking backwards.
- Looking forward to 2030, the best way to capture AI opportunities in software companies is to combine the following three:
- Profiting from a base position in a software ETF. The Arora Report’s software ETF of choice is IGV. IGV is covered in The Arora Report’s ZYX Allocation.
- Profiting from individual software company stocks that are evolving and keeping pace with AI developments and retaining and attracting customers. An example is PLTR, which was recently added to the ZYX Buy Core Model Portfolio.
- Profiting from shorting software companies whose business models are being hurt by AI. Signals on such companies are given in ZYX Short.
- A judicious combination of the foregoing will produce significantly higher risk adjusted returns, compared to using only one of the three in your investments.
- In the early trade, the momo crowd is aggressively buying junk stocks.
- 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.
China
Chinese stocks are ultra cheap. The rally in Chinese stock has stalled after Trump’s re-election. Trump wants to impose 60% tariffs on Chinese goods. In the face of Trump’s threat, China’s 10 year note auction saw strong demand. The pricing was close to the record low yield. This data point indicates that investors believe China will manage just fine with Trump’s tariffs.
In The Arora Report analysis, it is important to keep track of such data points. If there are more such data points, it will be time to step into Chinese stocks because they are so cheap.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN) and Tesla (TSLA).
In the early trade, money flows are neutral in Apple (AAPL), Meta (META), and Microsoft (MSFT).
In the early trade, money flows are negative in Alphabet (GOOG) and Nvidia (NVDA).
In the early trade, money flows are negative 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.
Note for new members: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money.
Very Very Short-Term Indicator
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.
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 approaching $100K. SEC Chair Gensler has said that he will resign on Trump’s inauguration day. Gensler has been anti-bitcoin. Even though Gensler’s resignation was expected, as Trump has said he would replace Gensler, buying came into bitcoin on the news.
Markets
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.
S&P 500 futures are trading at 5965 as of this writing. S&P 500 futures resistance levels are 6017, 6131, and 6256: support levels are 5926, 5748, and 5622.
DJIA futures are up 24 points.
Gold futures are at $2696, silver futures are at $31.17, and oil futures are at $69.65.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary protection band from The Arora Report is very popular. The protection band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash, Treasury bills, short term fixed income, 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.
A protection band of 0% would be very bullish and would indicate full investment with 0% in cash. A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.
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.
