By Nigam Arora
To gain an edge, this is what you need to know today.
AI Gets Even Hotter
Please click here for a chart of Nasdaq 100 ETF (QQQ).
Note the following:
- The chart shows QQQ is approaching the low band of zone 1 (resistance).
- Of note is that S&P 500 has broken to new highs but Nasdaq 100 has not. In The Arora Report analysis, how the divergence between S&P 500 and Nasdaq 100 resolves will be important. The stock market is positioned for the divergence to be resolved by QQQ breaking to a new high.
- Think of market positioning at this time as everyone being on one side of the boat. The equivalent of a storm would be if the divergence is resolved by S&P 500 pulling back instead of Nasdaq 100 breaking out.
- The chart shows RSI is pulling back.
- Anthropic revenue increased 14x in Q2 from a year ago to $11.5B. This is generating significant buying in the AI trade in the premarket.
- On the flip side, a highly detailed report from The WSJ estimates that nine major tech companies have about $3T of off balance sheet commitments, mostly for AI infrastructure. Bears are hanging their hats on the $3 off balance sheet commitments. In The Arora Report analysis, these commitments are a double edged sword and not necessarily bearish. If demand meets or exceeds expectations, these commitments can drive tremendous growth for the nine companies and, in turn, drive the stock market much higher than you might think. If demand falls short of expectations, there will be overcapacity, and the stock market can easily correct 30% – 50%.
- Bears are also hanging their hats on a new Chinese AI system that can write and optimize CUDA code better than senior software engineers. CUDA is the software ecosystem from Nvidia (NVDA) that has been a big part of Nvidia’s moat. Some bears are going to the extreme, saying Nvidia is finished. In The Arora Report analysis, prudent investors should think of this development merely as a crack in Nvidia’s moat. In the near term, Nvidia will also benefit from AI models writing great CUDA code for Nvidia GPUs. However, in the longer term, there is a risk that AI can optimize software for chips from Google (GOOG, GOOGL), Advanced Micro Devices (AMD), and others, posing a challenge to Nvidia.
- Nvidia appears to be partially backtracking on a guarantee for a $250B OpenAI data center.
- In The Arora Report analysis, prudent investors should note the foregoing as crosscurrents that are natural at this stage of the AI revolution. Many more developments are ahead – some will be positive for AI stocks while others will be negative.
- Tempering the aggressive buying by the momo crowd in the early trade is selling due to rising yields.
- The best way to handle all of the cross currents and make money from the upside while protecting portfolios from the downside is to follow the Arora Protection Band.
- Earnings from retailers Walmart (WMT), Target (TGT), Home Depot (HD), and Lowe’s (LOW) are ahead. This earnings will give a good picture of how the consumer is doing.
- FOMC minutes will be released on August 19.
- 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.
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), and Alphabet (GOOG).
In the early trade, money flows are neutral in Apple (AAPL).
In the early trade, money flows are negative in Meta (META), 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.
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 indeterminable as the result of the battle between buying on Anthropic related optimism and rising yields related selling is uncertain. 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 *** in gold in the early trade. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is *** in 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 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.
S&P 500 futures are trading at 7803 as of this writing. S&P 500 futures resistance levels are 7900 and 8000 : support levels are 7700, 7318, and 7194.
DJIA futures are down 186 points.
Gold futures are at $4404, silver futures are at $65.35, and oil futures are at $83.04.
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 23% – 37% in cash, Treasury bills, short term fixed income, or allocated to short-term tactical trades; and short to medium-term hedges of 7% – 9%, and short term hedges of 5%. 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.
