EXCITEMENT OVER ARM IPO AND AI BUT SLEW OF ECONOMIC DATA SHOWS HOTTER ECONOMY

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By Nigam Arora & Dr. Natasha Arora

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

Slew Of New Economic Data

Please click here for a chart of semiconductor ETF SMH. This is an important chart today in view of Arm Holdings (ARM) IPO.

Note the following:

  • The chart shows semiconductors are levitating above the support zone.
  • RSI on the chart shows that semiconductors are returning from an oversold condition.
  • ARM IPO is today.  ARM designs the chips that are used by many semiconductor manufacturers and are used in practically every smartphone available today.  ARM is priced at $51 per share, raising close to $5B.  The IPO was 10 times oversubscribed, which will likely push the stock higher when trading begins.
  • In The Arora Report analysis, ARM is not an AI company, but facts do not matter in the stock market when investors are excited.  ARM is being marketed as an AI company, and the momo crowd does not know any better.
  • How high ARM trades after it opens will be an indication of investor sentiment, especially about AI.
  • Semiconductors are the leading sector.  How semiconductors perform after ARM IPO starts trading will also be a tell for the AI buying frenzy.
  • Other than the ARM IPO, there is plenty of news to keep investors excited about AI.  In The Arora Report analysis, the use of generative AI is rapidly expanding but competition is also increasing. The following illustrates the point:
    • Amazon (AMZN) is launching its generative AI tool to help sellers better describe their goods.
    • Adobe (ADBE) is undercutting the price of generative AI tools for images from OpenAI, the creator of ChatGPT.
  • The European Central Bank (ECB) raised interest rates by 25 basis points.  Importantly, ECB suggested it may be done raising interest rates.
  • In The Arora Report analysis, the indication that ECB may be done raising interest rates is bullish for the stock market.  
  • In The Arora Report analysis, there is a slew of new economic data that shows the economy is hotter than the consensus.  
    • Inflation at the producer level is hotter than the consensus.
      • Headline PPI came at 0.7% vs. 0.4% consensus. A big contributor is rising energy prices.
      • Core PPI came at 0.2% vs. 0.2% consensus, but when trade is excluded, the data is hotter.
    • The U.S. economy is about 70% consumer based.  Therefore prudent investors pay attention to retail sales.  The mighty American consumer continues to spend excessively, often borrowing to spend.
      • Retail sales came at 0.6% vs. 0.2% consensus.
      • Retail sales ex-auto came at 0.6% vs. 0.4% consensus.
    • Overall, the jobs picture is staying strong.
      • Weekly initial claims came at 220K vs. 226K consensus.
      • Initial claims is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories.  In plain English, adaptiveness means that the model changes itself with market conditions.  Please click here to see how this is achieved.  One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model.  Most models on Wall Street are static.  They work for a while and then stop working when market conditions change.
  • Barring a last minute agreement, UAW is likely to announce a strike tonight.
  • In The Arora Report analysis, the trading leading to quadruple witching tomorrow is driving stock prices higher this morning. Investors need to remember that Wall Street mechanics play a major part in market movements.  It is important for both long term and short term investors to deeply understand Wall Street mechanics.  Most of this knowledge is kept secret because of its high value.  There are several podcasts in Arora Ambassador Club to help you become well versed in Wall Street mechanics.
  • 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.
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Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon, Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).

In the early trade, money flows are mixed in S&P 500 ETF SPY and positive in 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.

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 U.S. standard for crude oil, WTI, has reached the psychologically important level of $90.  Oil prices have jumped significantly over the last two weeks.   

The momo crowd is *** oil in the early trade.  Smart money is *** in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Crypto bulls need to pay special attention to the latest statement from SEC Chair Gensler on crypto: “I have never seen a field that is so ripe with misconduct.”

Bitcoin (BCT.USD) is range bound above $26,000.

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 down, and bonds are ticking up.

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.

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Gold futures are at $1926, silver futures are at $22.76, and oil futures are at $89.64.

S&P 500 futures are trading at 4540  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 up 205 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.

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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.

To take a free 30-day trial to paid services to gain access to more opportunities, please click here.

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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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