By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Power Of AI
Please click here for a chart of Amazon stock (AMZN).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of AMZN stock is being used to illustrate the point.
- The chart shows when Amazon earnings were released.
- The chart shows that the stock rallied on release of earnings. Earnings were better than the consensus and whisper numbers. A stock moves based on the difference between reported earnings and projections compared to the whisper numbers. Whisper numbers are the numbers that analysts provide privately to their best clients.
- The profit engine of Amazon is AWS, its cloud computing service. As investors look below the surface, there is a slight miss in cloud computing revenues.
- The chart shows that the stock gave up its gain on cloud computing data.
- The chart shows when Amazon made a comment that AWS will make ‘tens of billions’ from generative AI.
- The chart shows that AMZN stock staged a strong rally on this comment.
- In The Arora Report analysis, the reaction in AMZN stock on just the comment after missing the revenues shows the power of just talking about AI to move up stocks is still there. There has been a concern that stocks going up on AI talk has run its course. In The Arora Report analysis, starting next quarter, investors will want to see actual earnings and revenue gains from AI. A fortune is to be made in AI over the next seven years. It is not going to be a straight line. At times, it is going to be treacherous. Those who take time to develop more in-depth knowledge will make significantly more money than those who do not take the time to develop in-depth knowledge, even when receiving the same signals. The best way to develop your investing knowledge about AI is to listen to the podcasts in Arora Ambassador Club.
- The just released economic data shows that the consumer continues to binge. Here are the details:
- Personal spending came at 0.7% vs. 0.5% consensus.
- Personal income came at 0.3% vs. 0.4% consensus.
- In The Arora Report analysis, the pattern in the data has been and continues to be that consumers’ spending has been going up more than the rise in their incomes. Where is the money coming from? The data just released shows that consumers are dipping into their savings that they built from free money programs. The other data shows that consumers without savings are running up higher balances on their credit cards.
- The stock market continues to levitate and a recession has been postponed due to strong spending by the consumer. Here is the key question for investors: How long can the consumer keep this up? We had previously shared with you that consumer liquidity would start declining in October. The new data shows that the Arora call has proven spot on. Consumer liquidity has started to decline. It will take several months of declining consumer liquidity before consumers slow their spending.
- The latest data on the Fed’s favorite inflation gauge PCE shows that inflation is running as expected. Here are the details:
- Headline PCE came at 0.3% vs. 0.3% consensus.
- Core PCE came at 0.3% vs. 0.3% consensus.
- University of Michigan consumer sentiment will be released at 10am ET. This data may be market moving.
- Prudent investors should keep an eye on Iran. The U.S. struck Iranian linked bases in Syria. The U.S. is sending thousands of troops to the Middle East. The intelligence is that Iranian proxies are planning attacks on U.S. assets in the Middle East.
- Aggressive buying came into stock futures yesterday evening after Amazon’s artificial intelligence comment. This shows that even the mention of artificial intelligence still has the power to move not just a stock, but the entire market. The buying on AI frenzy persisted throughout the night and is continuing this morning in the premarket.
- We will be carefully watching to see if the strength based on Amazon’s AI mention brings in more buyers or if the strength is sold as the day progresses.
- 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 Amazon, Meta (META), Tesla (TSLA), Nvidia (NVDA), and Microsoft (MSFT).
In the early trade, money flows are neutral in Alphabet (GOOG) and Apple (AAPL).
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.
Gold
The momo crowd is *** in 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
There is belief that whales will take advantage of the low liquidity over the weekend to run up bitcoin (BTC.USD) above $35,000 and this will suck in retail investors who will buy with the hope of bitcoin reaching $40,000 quickly. Prudent investors need to keep in mind that bitcoin has rallied about 30% in two weeks in hopes of a spot bitcoin ETF.
Markets
Our very, very short-term early stock market indicator is ***. Keep in mind, today is Friday. On the positive side, short squeezes tend to start on Friday and run up the market. On the negative side, some hedge funds and institutions may decide to trim at the edges to lower their risk ahead of the weekend, not knowing how Iran will respond to U.S. strikes. 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 $1990, silver futures are at $22.89, and oil futures are at $84.56.
S&P 500 futures are trading at 4175 as of this writing. S&P 500 futures resistance levels are 4200, 4318, and 4400: support levels are 4000, 3950, and 3860.
DJIA futures are up 31 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.
