By Nigam Arora
To gain an edge, this is what you need to know today.
AI Share
Please click here for a chart of Advanced Micro Devices stock (AMD).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of AMD stock is being used to illustrate the point.
- The chart shows AMD stock trading in a wide range yesterday as the company conducted its investor day.
- The chart shows AMD moving up this morning.
- The price action in AMD is a learning moment for investors. It is not how good the investor day is. It is how what is said compares to expectations. The reason for high volatility was that investor expectations were very high that AMD would give more bullish numbers than what were already discounted in the stock. It turned out that, with the exception of total addressable market, the numbers AMD provided were already discounted in the stock.
- RSI on the chart shows that if upward momentum takes hold, the stock has room to run.
- Here are the key points from AMD’s investor day:
- AMD is planning to take AI market share away from Nvidia (NVDA). In The Arora Report analysis, AMD has a shot at capturing 10+% market share in AI.
- AMD is projecting 35% compounded annual growth rate over the next three to five years.
- AMD is targeting $20 in earnings per share by 2030.
- AMD has increased its total addressable market to over $1T.
- In The Arora Report analysis, in the longer term, one of the key factors will be if OpenAI fully ramps to six gigawatt potential with AMD. The other key factor will be how many gigawatt-scale customers AMD attracts.
- Yesterday, NVDA stock was sold. This morning NVDA stock is seeing buying after a key supplier Foxconn said that it expects strong AI demand through next year and reported 17% earnings increase year-over-year.
- The Fed is divided over a possible interest rate cut in December. Here are the main questions for the Fed as it balances inflation and the risks to the labor market:
- Are price increases from tariffs a one time event or will they sustain?
- Is weak hiring an indication of reduced supply or slowed demand?
- Are rates restrictive?
- After the government opens, economic data will start to trickle in and may become a big driver of the markets.
- This morning, there is buying in the stock market as euphoria about the government reopening continues.
- Prudent investors need to be aware of a new development that may become a trend. During the pandemic, wages of hourly employees rapidly rose. Lately, wages have been stagnant, but now, wages may start coming down. This is not a good development for the low end consumers and in turn, for the companies that sell to low end consumers. Walgreens has announced it will decrease wages for hourly workers and no longer provide paid holidays and vacations.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the Arora Protection Band. The Arora Protection Band is one of the large number of unique edges that are available to members of The Arora Report.
India
India’s Consumer Price Index (CPI) came at 0.25% year-over-year vs. 0.48% consensus.
In The Arora Report analysis, this data increases the probability of a rate cut by the Reserve Bank of India. If on top of this India strikes a good trade deal with the U.S., stocks in India could rip. There will be a new signal on India ETF EPI in ZYX Allocation and ZYX Emerging. When appropriate, there may also be new signals on India ETFs SMIN and GLIN in ZYX Emerging. There may also be a signal on India focused fund FFXDF in ZYX Buy.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Tesla (TSLA).
In the early trade, money flows are neutral in 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.
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. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the Arora Protection Band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
The Arora Report’s proprietary 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 discount on Russian oil has widened to about $20 per barrel due to India reducing buying of Russian oil. The $20 discount is the highest this year.
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 range bound.
Markets
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.
S&P 500 futures are trading at 6896 as of this writing. S&P 500 futures resistance levels are 7000 and 7200 : support levels are 6780, 6500, and 6256.
DJIA futures are up 124 points.
Gold futures are at $4131, silver futures are at $51.57, and oil futures are at $60.11.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary Arora Protection Band from The Arora Report is very popular. The Arora 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.
