APPLE MIXED REALITY HYPE PICKS UP AS AI FRENZY SLOWS, SAUDI CUTS OIL PRODUCTION

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By Nigam Arora & Dr. Natasha Arora

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

Mixed Reality Hype

Please click here for a chart of Apple stock (AAPL).

Note the following:

  • The Morning Capsule is about the big picture, not an individual stock.  The chart of Apple is being used to illustrate the point.
  • The AAPL chart is a weekly chart to give investors a longer term perspective.
  • The chart shows that AAPL stock is at the top band of the resistance zone.
  • RSI on the chart shows that AAPL stock is very overbought.  When a stock is this overbought, it is vulnerable to a pullback.
  • The trendline on the chart shows that the move up in Apple is now accelerating.
  • Technical analysis is both a science and an art.  A move accelerating from the trendline, in traditional technical analysis, is bullish.  However, in The Arora Report analysis, such a move often occurs right before the pullback.
  • Bulls are confident that the unveiling of Apple’s mixed reality headset will decisively push Apple stock above the resistance zone for a solid breakout.
  • Bears point out the following indisputable facts:
    • Apple revenues have declined the last two consecutive quarters.
    • According to Apple itself, revenues are going to decline again this quarter, making it the third quarter in a row of decline.
    • For a stock with three quarters of declining revenues, AAPL is a very expensive stock.  AAPL is trading at a PE of over 28.
  • As a full disclosure, AAPL is long from an average of $4.68 in ZYX Buy Model Portfolio, and the very long term Arora target zone is $255 – $270.
  • Bulls contend that the hype over AR/VR (augmented reality / virtual reality)  headset is justified.
  • Bears say that AR/VR headsets are clunky and too expensive.
  • The AI frenzy appears to be slowing based on the data so far in the early trade.  However, AR/VR hype is picking up.
  • It is instructive that most AI stocks are pulling back in the early trade despite significant pump on social media over the weekend.  Typically, retail investors buy at the regular market session open based on the media hype over the weekend.
  • Apple’s mixed reality headset will be unveiled at WWDC today.
  • Investors should also be aware that historically the “sell the news” reaction is common to Apple announcements in the short term.
  • Apple’s AR/VR headset is the most important Apple announcement over the last decade.  The market reaction will be instructive for all investors.  The reason is that AAPL carries very heavy weight in indexes.
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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

Saudi Arabia has unilaterally cut oil production by 1M bpd.  Oil is giving up some of its earlier gains.

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 is range bound.

Markets

Our very, very short-term early stock market indicator is 🔒 but can quickly change based on, first, Apple rumors, and then the market reaction to Apple’s formal announcement.  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 $1959, silver futures are at $23.48, and oil futures are at $73.61.

S&P 500 futures are trading at 4290  as of this writing.  S&P 500 futures resistance levels are 4318, 4400, and 4460: support levels are 4200, 4000, and 3950.

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DJIA futures are up 8 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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This post was just published on ZYX Buy Change Alert.

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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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