By Nigam Arora
To gain an edge, this is what you need to know today.
Look Ahead – Iran Is The Key
Please click here for a chart of leveraged semiconductor ETF (SOXL).
Note the following:
- As a reminder, The Arora Report is politically agnostic. Our sole job is to help investors generate high risk adjusted returns.
- Semiconductors reflect the AI trade, and SOXL is the momo crowd’s favorite.
- The chart shows SOXL is consolidating below the low band of zone 3 (resistance) after the Blue Wave in the midterm election.
- The intraday price action is insightful.
- After the market close yesterday, SOXL staged a major rally, trading as high as $78.36. As a reference, SOXL is trading at $70.20 as of this writing in the premarket.
- The rally in SOXL was due to Advanced Micro Devices (AMD) reporting earnings higher than the whisper numbers and guiding significantly higher than prior projections. The consensus for AMD earnings were $1.94, and whisper numbers were around $2.01. AMD reported $2.09. AMD is seeing FY27 revenue growth of over 80%. AMD earnings are especially important after competitor Intel’s (INTC) weak report.
- In the premarket this morning, SOXL has not only given up all of its gain, it is trading down 3.37% from yesterday’s close.
- AMD traded as high as $530.38 on earnings. In the premarket this morning, AMD has given up most of the gain and is now trading at $486.10.
- RSI on the chart shows that the bullish divergence has been negated by the Blue Wave.
- Momo investors are rushing to sell AI stocks and rushing to buy stocks perceived as winners from the Blue Wave. Here are the key points from The Arora Report analysis:
- The momo crowd is making a mistake reacting instead of analyzing. The momo crowd is ignoring the fact that President Trump is still president and Democrats controlling Congress is not a guarantee they can deliver everything investors are betting on.
- The momo crowd is aggressively selling data center stocks on Texas turning blue. The momo crowd is missing an important point. Republican Governor Abbott had already halted new data center permits. If Texas makes it harder to build new facilities, existing data centers with secured electricity could become significantly more valuable. The momo crowd is selling data center stocks without distinguishing between existing facilities and projects that may never get built. If new data centers cannot be built in Texas, much of that investment will flow to other states.
- Nvidia (NVDA), AMD, Intel, and Micron (MU) do not need their chips to end up in Texas. What matters is how much AI computing capacity gets built.
- Solar and wind stocks are running up as if energy policies have changed, but they have not. There is no guarantee the newly elected Democratic Congress will change energy policies. Further, data centers need reliable electricity around the clock. Wind and solar alone cannot provide that without storage or other backup. The momo crowd is betting on a political shift instead of looking at the economics.
- Hospital and health insurance stocks are jumping on expectations of more government healthcare spending. The momo crowd is ignoring the fact that the national debt is already over $40T, and changes in government healthcare spending would need the support of the Trump administration.
- The momo crowd is selling defense stocks indiscriminately. President Trump’s proposed $1.5T defense budget may face opposition, but the world has not become safer because Democrats won Congress. Iran remains the key with the possibility of renewed military action. The need for advanced weapons, missile defense, and replenishing military stockpiles is not going away.
- Elon Musk spent hundreds of millions of dollars supporting Republicans, and now the Blue Wave is putting pressure on stocks associated with Musk. Prudent investors know to separate their politics from their investments. SpaceX (SPCX) and Tesla (TSLA) have announced an initial $16.8T Texas semiconductor project, and SpaceXAI has explored building major data centers in Texas. Political headwinds may delay some projects, but they do not automatically destroy the long term economic value.
- In The Arora Report analysis, the biggest winners from the Blue Wave are unlikely to be the stocks the momo crowd is buying today. Some of the stocks being sold could actually benefit as the consequences of the election play out. History shows following the crowd on political headlines without understanding the economics is a good way to lose money.
- In The Arora Report analysis, the next big question for prudent investors is how will the Blue Wave change President Trump’s decision on Iran. Here are the key points:
- There are reports of celebrations in Iran on the Democratic victory in the U.S.
- Iran may mistakenly believe that the Democratic victory has weakened President Trump and strengthened Iran’s negotiating hand.
- President Trump no longer has to worry about the midterm elections. The political constraint that may have held him back before the election is now gone.
- President Trump is still commander-in-chief, and the new Democratic Congress does not take office until January 3. President Trump has considerable time to act before then.
- The Blue Wave cuts both ways. President Trump may want a deal to bring down oil prices. A credible deal could send oil lower and stocks higher. On the other hand, President Trump may decide that military escalation is the better way to force Iran to make concessions. Major new strikes could send oil soaring and stocks plunging.
- If it was not for the pending Iran issue, The Arora Report call today would have been to deploy cash and reduce hedges; the Arora Protection Band would have been changed for lower protection. This would have been the case not because of the Democratic victory but because the overhang of the election has lifted. However, no change is being made at this time due to the uncertainty related to Iran.
- At this time, it is worth a reminder to prudent investors of the Arora principle: Always give priority to return of capital over return on capital. There is truth to the old saying that it is not how much money you make, it is how much money you keep.
- ADP is the largest private payroll processor in the country. ADP uses its data to provide a glimpse of the official jobs report that will be released on Friday at 8:30am ET. ADP employment change came at 86K vs. 75K consensus.
- ISM Non-Manufacturing Index will be released at 10am ET and may be market moving.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the Arora Protection Band. The Arora Protection Band is one of the large number of unique edges that are available to members of The Arora Report.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Apple (AAPL).
In the early trade, money flows are negative in Nvidia (NVDA) and Tesla (TSLA).
In the early trade, money flows are positive 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) AI stocks and *** perceived winners in the early trade. Smart money is *** stocks in the early trade.
Note for new members: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the Arora Protection Band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
The Arora Report’s proprietary very, very short-term early stock market indicator is indeterminable due to noise in the data. 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.
Gold
The momo crowd is *** gold in the early trade. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
API crude inventories came at a draw of 5.267M barrels vs. a consensus of a build of 2.1M barrels.
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 range bound.
Markets
Interest rates are ticking down, and bonds are ticking up.
The dollar is weaker.
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.
S&P 500 futures are trading at 7688 as of this writing. S&P 500 futures resistance levels are 7733, 7795, and 7831 : support levels are 7626, 7541, and 7318.
DJIA futures are up 1135 points.
Gold futures are at $4053, silver futures are at $52.04, and oil futures are at $93.46.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary Arora Protection Band from The Arora Report is very popular. The Arora Protection Band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.
Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash, Treasury bills, short term fixed income, 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 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.
