By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Watch Trump Trade
Please click here for a chart of Taiwan Semiconductor (TSM).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of TSM stock is being used to illustrate the point.
- TSM is important because it is the largest semiconductor foundry in the world. More importantly, TSM manufactures nearly all of the advanced AI chips. Nvidia (NVDA) GPUs are manufactured by TSM.
- The chart shows that the Trump trade caused the upward sloping trendline to be broken.
- The chart shows a gap down on Trump’s comments about Taiwan and China.
- The chart shows that volume was high as the stock fell on Trump’s comments. This indicates that the Trump trade has conviction.
- The chart shows that TSM is attempting a bounce after reporting excellent earnings.
- TSM reported earnings better than consensus and whisper numbers. Here are the details:
- Over 50% of revenues are coming from AI and advanced chips.
- Q2 earnings came at $1.48 vs. $1.41 consensus.
- Revenues grew 34.6% year-over-year. Revenues came at $20.82B vs. $20.33B consensus.
- The company guides Q3 revenue of $22.4B – $23.2B vs. $22.64B consensus.
- The company guides gross margin in the range of 53.5% – 55.5%.
- The company guides operating margin between 42.5% – 44.5%.
- RSI on the chart shows that it is not yet oversold. This indicates that it is too early to step in to buy, even for those who are oblivious to the China risk.
- One result of the Trump trade gaining popularity is that yesterday was the worst day for semiconductors since the fall in semiconductors in March 2020 due to COVID.
- The Trump trade is not all negative. As we have previously shared with you, the Trump trade is driving money into small caps and bank stocks. Of note are extremely positive money flows in Russell 2000 ETF (IWM), bank ETF (KBE), and regional bank ETF (KRE). IWM and KBE are in the ZYX Allocation Model Portfolio.
- It is worth a reminder that The Arora Report is politically agnostic. Our sole job is to help investors extract the maximum amount of money with the lowest possible risk from the markets.
- The Arora Report shared with you early on that Trump becoming the next president had become the highest probability scenario.
- In The Arora Report analysis, the probability of Biden backing out and Democrats picking a new candidate has risen overnight.
- The take home message for investors is that if Biden backs out, the popular Trump trade may reverse.
- In The Arora Report analysis, to gauge early signs of the Trump trade reversing, investors should watch AI semiconductors such as NVDA, ASML (ASML), Applied Materials (AMAT), Micron (MU), Arm (ARM), Broadcom (AVGO) and AMD(AMD) as well as small caps.
- It is important to separate your politics from your investments. The election is a significant event ahead that can make a major difference to your portfolio. Our long experience with thousands of individual investors, investment advisors, and money managers has clearly shown that those who develop deeper knowledge do much better compared to those who do not with both groups reading the same signals on the Real Time Feeds. Investors face a problem that it is very difficult to find objective analysis without an agenda. The best way to develop deeper knowledge is to listen to the podcasts in Arora Ambassador Club.
- Initial jobless claims came at 243K vs. 225K consensus. This indicates that the jobs picture is beginning to weaken. Right now, investors like more people getting laid off because to investors it means a higher probability of a Fed rate cut. In The Arora Report analysis, right now, investors are oblivious that a weakening jobs picture also means that earnings may not be as good in the upcoming quarters as investors anticipate. Initial jobless claims is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories. In plain English, adaptiveness means that the model changes itself with market conditions. Please click here to see how this is achieved. One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model. Most models on Wall Street are static. They work for a while and then stop working when market conditions change.
- 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.
Europe
European Central Bank (ECB) is leaving rates unchanged as expected. Lagarde is saying that there is no pre-commitment to any one rate path.
In The Arora Report analysis, investors should focus on the September rate decision.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
In the early trade, money flows are positive 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.
Gold
The momo crowd is *** 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) continues to see buying as part of the Trump trade.
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 $2467, silver futures are at $30.58, and oil futures are at $81.07.
S&P 500 futures are trading at 5654 as of this writing. S&P 500 futures resistance levels are 5748 and 5926 : support levels are 5622, 5500, and 5400.
DJIA futures are down 96 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.
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.
