By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Hopes On Earnings
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 AAPL stock is being used to illustrate the point.
- After the U.S. credit downgrade, investors are pinning hopes on Apple and Amazon (AMZN) earnings to drive the stock market higher by stoking AI frenzy.
- AAPL is the largest and most popular stock. Many investors believe that AAPL stock is as safe as a money market fund, and they use it similar to a money market fund. AAPL carries very heavy weight in the indexes and as such, AAPL stock is a big driving force behind the stock market.
- The chart shows when AAPL stock dipped in the Arora buy zone, giving an opportunity to those who were not already in AAPL stock to buy AAPL.
- The chart also illustrates the power of Arora buy zones. A buy zone is a technique used by billionaires and hedge funds. Please see the Trade Management Guidelines to learn more.
- The chart shows the upward sloping trendline that has held since AAPL stock dipped in the Arora buy zone.
- The chart shows when Silicon Valley Bank failed. To prevent more bank failures, the Fed injected a massive amount of liquidity in the system. Some of the liquidity injected by the Fed went into AAPL stock, driving it higher.
- The chart shows RSI divergence. In plain English, this means that RSI went lower as the stock price went higher. From a technical perspective, this is a warning signal ahead of earnings.
- Prudent investors will be carefully watching if the trendline holds after the earnings.
- Bullish investors are expecting AAPL stock to jump to about $210 after earnings. These investors are betting that AAPL will mention AI in its earnings release and subsequently in its earnings call, driving the stock higher.
- From a fundamental perspective, the rise shown in AAPL stock on the chart has occurred with deteriorating earnings. If the consensus is correct, AAPL is on track for three quarters in a row of declining revenues.
- The move up in AAPL stock is driven by PE expansion driven by positive investor sentiment towards AAPL. A year ago, AAPL was trading at a PE of 22. Now, it is trading at a PE of 33. A year ago, AAPL was trading at price/sales of 5.87. Now, AAPL is trading at price/sales of 8.15.
- We understand investors love AAPL. Especially for newer members, before sending us a negative email for pointing out that AAPL stock is very expensive, keep in mind that AAPL stock is long from $4.68 in the ZYX Buy Model Portfolio by The Arora Report. Due to large gains, AAPL stock has a very heavy weight in the portfolios of most long term members of The Arora Report.
- Qualcomm (QCOM), a major supplier of technology to all smartphones including Apple, stated on its conference call that it is seeing significant weakness in phone sales in China. The comment is mostly directed at Android phones. If Android phone sales are so weak, is the iPhone immune?
- Earnings from AT&T (T), Verizon (VZ), and T-Mobile (TMUS) show that there is weakness in phone sales. However, it is not known if that weakness is only in Android phones.
- In addition to Apple, Amazon will be reporting earnings after the close.
- As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.
Jobless Claims
Initial jobless claims came at 227K vs. 225K consensus. This is a leading indicator and carries heavy weight in the highly successful adaptive ZYX Asset Allocation Model with inputs in 10 categories. In plain English, adaptive means that the model changes itself with market conditions. Most models on Wall Street are static. They work for a while and then they stop working when market conditions change. The adaptiveness of the ZYX Asset Allocation Model is, in part, responsible for the success of The Arora Report. Please click here to see how adaptiveness is achieved.
Labor Costs
Unit labor costs came at 1.6% vs. 2.7% consensus.
Q2 productivity came at 3.7% vs. 1.7% consensus.
India
The economy in India continues to stay strong. July services PMI came at 62.3 vs. 58.0 consensus.
Magnificent Seven
In spite of bullishness about Apple and Amazon earnings, money flows are negative in the early trade in Apple, Amazon, Alphabet (GOOG, GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
Since the AI frenzy driven rally has been led by the magnificent seven stocks, it is important for investors to pay attention to the magnificent seven stocks. Today, it is especially important to see how the magnificent seven stocks behave in view of Apple and Amazon earnings.
Money flows in the early trade in NASDAQ 100 ETF (QQQ) and S&P 500 ETF SPY are negative.
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
Bitcoin is range bound.
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.
Interest rates are ticking up, and bonds are ticking down.
The dollar is range bound.
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 $1967, silver futures are at $23.64, and oil futures are at $80.42.
S&P 500 futures are trading at 4519 as of this writing. S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.
DJIA futures are down 84 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.
