By Nigam Arora
To gain an edge, this is what you need to know today.
U.S. Semiconductors Following South Korea
Please click here for a chart of leveraged semiconductor ETF (SOXL).
Note the following:
- Semiconductors are the leading sector that drove the stock market higher. SOXL is the momo crowd’s favorite semiconductor ETF.
- The chart shows that SOXL is now making lower lows in the early trade. This is a negative.
- The chart shows that the rally from the July 17 low failed at the low band of zone 2 (resistance). This is a negative.
- RSI on the chart shows that semiconductors are very oversold. Oversold conditions often lead to a bounce.
- We have been sharing with you that lately semiconductors in the U.S. have been following the South Korean market. Today is no different. Overnight, South Korea’s Kospi index was down 10%. Semiconductors in the U.S. are falling in the early trade, as shown on the chart. Investors need to remember that until recently, the South Korean stock market followed the U.S. stock market.
- As a member of The Arora Report, you have been way ahead of the curve. We have been sharing with you for a while that competition was going to come from China in memory and the stock market was oblivious. Overnight, the South Korean stock market fell because the market woke up to there being competition from China after being oblivious for a long time.
- Yesterday we shared with you that Chinese memory maker CXMT rose 466% on its first day after IPO. The success of the CXMT IPO has turned out to be the trigger to wake up the market to the threat of competition from China.
- As a member of The Arora Report, you have also been way ahead of the curve on a second front that the stock market had been obvious until now. We have long shared with you that an essential technology for the production of modern sophisticated AI chips is extreme ultraviolet lithography. We have been sharing with you that a Dutch company ASML (ASML) holds a near monopoly, but Chinese companies were attempting to produce their own machines.
- Now, the stock market is waking up to the fact that China will produce its own machines. In The Arora Report analysis, at least for today, the stock market is over estimating the China threat on extreme ultraviolet lithography in the near term. In The Arora Report analysis, in the near term, Chinese machines are not likely to be sophisticated enough to produce high end chips.
- The stock market is doing what it often does – stay oblivious to a new development for a long time and then all of a sudden wakes up and overreact. The reason for this phenomenon is the dominance of the momo crowd driven by momo gurus. The momo crowd does not do any deep analysis and is simply driven by greed and fear. Momo gurus’ real job is to run up the stocks in the guise of analysis, so they never share any negative news even when they are aware of it.
- After the momo crowd, the technical analysis crowd is the most dominant in the stock market. The fact is many fundamental analysts are closet chartists. The technical analysis crowd does not understand that traditional technical analysis no longer works well. Please click here to see the reasons.
- Also adding to concern is circular financing in AI. Again, as a member of The Arora Report, you have been ahead of the curve. The Arora Report has been warning about circular financing for a couple of years and sharing similarities to vendor financing before the 2000 crash.
- To be successful in the next phase of AI, investors need to change how they think about AI. Knowing how to think correctly will help investors extract more out of the markets from the Arora signals. For those who are interested in next level information, part 1 of a new series titled “THE NEXT PHASE OF AI: WHY WALL STREET GETS IT WRONG AND HOW EXCEPTIONAL INVESTORS STAY AHEAD” is live in Arora Ambassador Club. To get on the waitlist to join Arora Ambassador Club, please click here.
- If semiconductors do not bounce after the regular session open, expect momo accounts to be hit with margin calls and forced liquidations.
- The FOMC meeting starts today and a rate decision will be announced tomorrow at 2pm ET.
- Not long ago, the consensus was the Fed would leave interest rates unchanged, but the macro picture has changed. In The Arora Report analysis, if the Fed were to make a cold, hard decision based solely on data, the Fed should raise interest rates. On the flip side, the Fed is under intense pressure from President Trump to cut interest rates. Investors should consider this Fed meeting live and know that there is a fair probability of a surprise tomorrow. This probability has already been taken into account in the Arora Protection Band, again putting you ahead of the curve.
- On the positive side for the stock market, Oman is proposing joint control of the Strait of Hormuz with Iran. Under this proposal, paying a fee to pass through the Strait of Hormuz will be voluntary. In The Arora Report analysis, this is a major breakthrough and has the potential of resolving the Iran war. The reason is that making the fee voluntary would allow President Trump to declare victory and say he made sure there are no fees to pass through the Strait of Hormuz. It would also allow Iran to declare victory by saying they won on their main issue of imposing fees for passage through the Strait of Hormuz.
- 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 mixed in S&P 500 ETF (SPY) and negative 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.
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 ***. 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
The momo crowd is *** in 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
Interest rates and bonds are range bound.
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.
S&P 500 futures are trading at 7456 as of this writing. S&P 500 futures resistance levels are 7700, 7900, and 8000 : support levels are 7318, 7194, and 7032.
DJIA futures are up 482 points.
Gold futures are at $4032, silver futures are at $57.60, and oil futures are at $81.23.
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.
