MICROSOFT ILLUSTRATES THE REALITY FOR INVESTORS, REMINDER FROM AUSTRALIA

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By Nigam Arora & Dr. Natasha Arora

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

The Reality

Please click here for a chart of Microsoft (MSFT)

Note the following:

  • The Morning Capsule is about the big picture, not an individual stock.  The chart of MSFT is being used to illustrate a point.
  • It was well known to anyone who is doing very basic analysis that software sales to enterprises were slowing, layoffs would cause a hit to revenues as many corporations pay MSFT based on the number of users, and Azure growth would decelerate.  Azure is MSFT’s cloud offering.  MSFT heavily competes on this cloud offering with Amazon AWS  and Google Cloud.  With some exceptions, this has become a commoditized space with heavy price competition.
  • Contrary to the facts, based on hope strategy, the momo crowd aggressively bought MSFT stock going into the earnings report.  MSFT stock moved up from the 2023 low of $219.27 to $242.58 going into the earnings.
  • The momo crowd aggressively bought MSFT stock going into the closing minutes of the market yesterday based on hope strategy.
  • The chart shows when earnings were released.
  • The chart shows that after earnings were released the momo crowd aggressively ran up MSFT stock in heavy trading after hours to about $253.38.
  • The justification momo gurus found for running up the stock was that Azure growth came at 38% in constant currency vs. 37% prior guidance. It was easy to deduce with very basic analysis that buying on 1% higher growth in the last quarter was looking in the rearview mirror.
  • The chart shows when in the conference call MSFT said what was well known.  MSFT indicated that Azure growth was decelerating and software sales to corporations were slowing.
  • The chart shows that the stock fell as low as $238.75 after hours.
  • At the time the chart was made this morning in the premarket, MSFT was trading even lower at $235.92.
  • The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
  • The chart shows that the VUD indicator in MSFT is orange, indicating net supply.
  • The foregoing illustrates the following reality of the stock market:
    • Macroeconomic conditions are worsening.
    • Technology sales to enterprises are slowing.
    • Technology companies are overstaffed.
    • The momo crowd does not do any analysis.
    • The momo crowd continues to buy on hope strategy.
    • The momo crowd controls the stock market in the short term.
  • To be successful, investors need to understand the reality.  This is the reason that sophisticated investors and money managers find the data we publish on the momo crowd and smart money very useful.
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Reminder From Australia

At a time when momo gurus have convinced investors all over the globe that inflation is over and it is time to buy stocks, overnight there was a stark reminder from Australia.

Inflation in Australia rose to 7.8% in the fourth quarter of 2022 vs. 7.5% consensus. This is a 32-year high.

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

There are crosscurrents in oil.

API data showed that crude oil inventories rose by 3.378M barrels vs. 1.6M consensus. This data is bearish in the short term.

There are indications that OPEC+ will maintain its production level instead of increasing it on China reopening. This is bullish for oil.

The momo crowd is 🔒 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 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 $1925, silver futures are at $23.64, and oil futures are at $80.29.

S&P 500 futures resistance levels are 4000, 4200 and 4318: support levels are 3950, 3860 and 3770.

DJIA futures are down 291 points.

Protection Bands 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.

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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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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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