By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Artificial Intelligence Change You Need To Know
Please click here for a chart of Palantir stock (PLTR).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of PLTR stock is being used to illustrate the point.
- One of the reasons behind the success of The Arora Report and its popularity among individual investors, investment advisors, and money managers is The Arora Report’s proven track record of identifying change early. Those investors who identify a change early always come out ahead. The premise behind the ZYX Change Method is that the most profits are generated with the lowest risk by successfully predicting change before the crowd.
- The chart shows that PLTR, a popular artificial intelligence stock, ran up going into earnings.
- The chart shows that the move up yesterday was on heavy volume. There is a large group of investors in the stock market that follow only traditional technical analysis and has no comprehension that traditional technical analysis no longer works as well as it used to. Please click here to see the reasons. In traditional technical analysis, volume means confirmation.
- The chart shows that the move up yesterday was on high volume.
- The buying yesterday was mostly by the momo crowd on hopium and by the followers of traditional technical analysis on volume confirmation.
- The chart shows a big drop after earnings. It is a reminder that earnings are always a risk event. Results can be in either direction. It is also important to know that the momo crowd always buys ahead of earnings on hopium.
- PLTR reported great earnings. Here are the details:
- PLTR reported revenues of $634M vs. $615M consensus. The revenues are up 21% from a year ago.
- The company reported adjusted operating income of $226M vs. $200M consensus.
- PLTR was originally focused on government and defense business but is now increasingly capturing commercial business.
- PLTR generated commercial revenue of $299M vs. $292M consensus. This represents a 27% increase from the prior.
- The government revenue came at $335M vs. $322M consensus. This represents a growth of 16%.
- The company is very upbeat, and commentary about the future is very positive.
- The company is guiding full year revenue to $2.677B – $2.689B vs. the prior range of $2.652B – $2.668B.
- PLTR stock is being hit for two reasons:
- It is an expensive stock. If it was not for the momo crowd, the stock would have been trading much lower in the first place. The drop in the stock shows that now at least some investors are paying attention to valuation and are willing to take on the momo crowd.
- As good as earnings and projections are, there is deceleration in commercial business growth. This shows that prudent investors who dig into the details of the hard numbers, especially growth, are willing to take advantage of the strength in AI stocks and sell.
- The drop in PLTR stock represents for the first time a new change in how smart money is now willing to take on the momo crowd.
- Another important observation for prudent investors today is on Nvidia (NVDA). Here again, just like Palantir, a change is underway. This morning, there was an upgrade by a major Wall Street bank, but the stock is falling in the pre market. The reason is that those in the know were buying yesterday on the hopes of selling today to the segment of the momo crowd that depends on free media. This is the first time this commonplace phenomenon is coming to the premium AI stock – King Nvidia. A famous investor who is part of smart money recently reduced his stake in NVDA stock. Prudent investors need to remember that once the mania phase is over, the segment of the momo crowd that depends on free media often becomes the fodder for smarter players.
- Among earnings of note, Disney stock (DIS) is falling on earnings. Whisper numbers had ratcheted up going into earnings. Earnings are good but are less than whisper numbers. There will be a separate post on Disney with a buy zone, recommended quantity, and target zone. There is also a trade around position in DIS. The trade around position has been highly profitable and partial profits have been taken. A trade around position is a technique used by billionaires and hedge funds that can significantly increase your profits and lower your risks. Please see Trade Management Guidelines to learn more.
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Apple (AAPL) and Alphabet (GOOG).
In the early trade, money flows are neutral in Amazon (AMZN).
In the early trade, money flows are negative in Meta (META), Nvidia (NVDA), Microsoft (MSFT), and Tesla (TSLA).
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
Oil is volatile on conflicting reports from the Middle East.
The momo crowd is *** 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 down, and bonds are ticking up.
The dollar is range bound.
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 $2324, silver futures are at $27.58, and oil futures are at $77.91.
S&P 500 futures are trading at 5213 as of this writing. S&P 500 futures resistance levels are 5256, 5400, and 5500: support levels are 5020, 4918, and 4852.
DJIA futures are up 57 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 seven 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.
