AI STOCKS SHOW ASYMMETRY ON EXPECTATIONS PROVING TOO HIGH, WALL STREET PREPS FOR PRESIDENTIAL DEBATE

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By Nigam Arora & Dr. Natasha Arora

To gain an edge, this is what you need to know today.

AI Expectations

Please click here for a chart of Micron stock (MU).

Note the following:

  • The Morning Capsule is about the big picture, not an individual stock.  The chart of MU stock is being used to illustrate the point.
  • MU has become a favorite AI stock of Wall Street.
  • The chart shows that MU stock has fallen after earnings.
  • MU reported good earnings, but the stock fell because Micron’s guiding revenue is inline with consensus.  Whisper numbers were for MU to guide higher than the consensus.
  • The chart shows that MU is now below the trendline.
  • The chart shows the volume was high going into earnings, indicating the market’s conviction for the stock to go higher after earnings.
  • RSI on the chart shows that MU can go lower.
  • Technical analysis is fine, but investors should perform a 360 degree analysis that synergistically optimizes technical analysis, fundamental analysis, macro analysis, and quantitative analysis.
  • In The Arora Report analysis in the case of MU, even though technical analysis is giving a sell signal, after earnings, MU is still a buy on fundamental analysis, macro analysis, and quantitative analysis.  For most investors, it is better to buy in the buy zone.  For those who are aggressive, there is a trade around position.  Similar logic applies to other AI stocks.
  • In The Arora Report analysis, there are two very important observations from Micron earnings for investors:
    • AI is real but the momo crowd has driven expectations too high. 
    • There is a strong asymmetry in AI stocks for the time being.  The reaction to MU earnings illustrates the point. As of this writing in the premarket, MU stock is down about $6.  On the other hand, if the revenue projection was only slightly higher, the stock would have been heading for about a $40 gain in the zone of $175 – $182 in the coming days.  Members of The Arora Report have a long core position in MU from $21.77.  Now, they have a gain of 528%.   
  • The presidential debate between Donald Trump and Joe Biden is tonight.  Here are the key points for investors:
    •  First and foremost, The Arora Report is politically agnostic.  The Arora Report’s sole job is to help investors make money by staying independent, objective, and highly analytical.
    • The prevailing wisdom on Wall Street is that if Trump wins the debate, the stock market will go down.
    • In The Arora Report analysis, investors should not buy into Wall Street’s prevailing wisdom.
    • Long time members of The Arora Report may recall that prior to the 2016 election, when Wall Street had anointed Hillary Clinton as the next president, The Arora Report had correctly called that Trump would win.  At that time, The Arora Report was among the very tiny minority with the correct call.
    • When Trump won in 2016, Wall Street’s wisdom was that the stock market would fall.  In contrast, after Trump’s win, The Arora Report call was that the stock market would rise with DJIA reaching 30,000 in Trump’s first term.  At that time, no one had a call for DJIA to reach higher than 20,000.  History shows that The Arora Report had two perfect calls benefiting Arora Report members
  • Initial claims came at 233K vs. 238K consensus.  Investors should focus on the four week average.  In the short term, momo gurus are not going to like this number.
  • Durable orders are mixed.  Here are the details:
    • Headline durable orders came at 0.1% vs. -1.2% consensus.
    • Durable orders ex-transport came at -0.1% vs. 0.2% consensus.
  • Q1 GDP-third estimate came at 1.4% vs. 1.3% consensus.  This is a lagging indicator showing that the economy has been strong.
  • 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.
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Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple (AAPL) and Amazon (AMZN).

In the early trade, money flows are neutral in Alphabet (GOOG), Meta (META), and Microsoft (MSFT).

In the early trade, money flows are negative in 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 *** 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 seeing buying.

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.

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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 $2331, silver futures are at $29.42, and oil futures are at $81.61.

S&P 500 futures are trading at 5541 as of this writing.  S&P 500 futures resistance levels are 5622 and 5748: support levels are 5500, 5400, and 5256.

DJIA futures are down 110 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.

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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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Picture of Nigam Arora

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.

Picture of Dr. Natasha Arora

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.

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