By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Cracks In Ultra Bullish AI Story
Please click here for a chart of Arm stock (ARM).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of ARM stock is being used to illustrate the point.
- ARM has been one of the top artificial intelligence favorites of the momo crowd.
- ARM is a British semiconductor design firm that is mostly owned by Japanese company SoftBank (SFTBY). ARM is known for licensing its designs for smartphone CPUs, such as those used in Apple’s iPhones. Lately, ARM has been pivoting to artificial intelligence.
- The chart shows the gap down after the release of this quarter’s earnings. This indicates another crack in the ultra bullish short-term AI story promoted by momo gurus.
- The chart shows a gap up after last quarter earnings.
- Here are the details of ARM earnings:
- ARM reported Q4 (March) earnings of $0.36 vs. $0.30 consensus.
- Revenues came at $928M vs. $866M consensus.
- Revenues rose 46.6% year-over-year.
- For Q1 (June), the company projects earnings of $0.32 – $0.36 vs. $0.31 consensus.
- The company projects revenues of $875M – $925M vs. $866M consensus.
- For FY25, the company projects earnings of $1.45 – $1.65 vs. $1.54 consensus.
- The company sees revenues of $3.8B – $4.1B vs. $3.98B consensus.
- Royalty revenue was $514M up 37% year-over-year.
- The chart shows that from the peak after last quarter earnings to the recent low, ARM stock lost 47.8% of its value.
- The Arora Report was one of the first to pick up on the AI theme back in 2022 allowing members of The Arora Report to buy artificial intelligence stocks near the lows before the run up started. An example is members of The Arora Report buying Nvidia (NVDA) at an average price of $125.51 before the run up to over $974.
- The drop in ARM stock again shows you how spot on The Arora Report guidance has been – a fortune is to be made in artificial intelligence all the way to 2030, but in the short-term exuberance is overdone. At times, it will be treacherous – 47.8% drop in ARM stock from the peak proves the point. You need to consistently follow a proven system with a long track record such as the ZYX Change Method.
- ARM stock is falling for two reasons.
- Whisper numbers had moved much higher above the consensus going into earnings. Stocks move based on the difference between whisper numbers and the actual numbers. Whisper numbers are the numbers that analysts privately share with their best clients. Whisper numbers are often different from the numbers the same analysts publish. Whisper numbers is a technique used by analysts to drum up business. This is the reason that prudent investors do not depend on free data that floats around the internet and on the media. Prudent investors know better, but unfortunately many individual investors do analysis based on the free data and then spend years trying to figure out why their analysis never works out.
ARM beat the consensus numbers for the prior quarter and raised numbers for the current quarter over the consensus. However, it did not help because whisper numbers were so much higher.
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- For FY25, ARM guidance, even though inline with the consensus numbers, is way below the whisper numbers.
- On a separate note, in The Arora Report analysis Airbnb (ABNB) projections indicate that the consumer may be pulling back on summer travel.
- Jobless claims came at 231K vs. 213K consensus. This indicates that the job market is beginning to slow.
- 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.
U.K.
Bank of England (BOE) left its key interest rate unchanged at 5.25%. BOE is expected to cut rates in June.
BOE Governor Andrew Bailey says that BOE may reduce interest rates faster than markets expect.
In The Arora Report analysis, BOE moves will likely encourage Powell to do what he is itching to do irrespective of the data.
China
The Chinese economy appears to be rebounding. Exports increased 1.5% year-over-year vs. 1.0% consensus.
Magnificent Seven Money Flows
In the early trade, money flows are neutral in Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), and Microsoft (MSFT).
In the early trade, money flows are negative in Meta (META), Tesla (TSLA), and NVDA.
In the early trade, money flows are negative 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 *** stocks in the early trade.
Gold
The momo crowd is *** 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 (BTC.USD) is seeing selling.
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 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 $2322, silver futures are at $27.94, and oil futures are at $79.59.
S&P 500 futures are trading at 5202 as of this writing. S&P 500 futures resistance levels are 5210, 5256, and 5400 : support levels are 5020, 4918, and 4852.
DJIA futures are down 96 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.
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 seven 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.
