By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
A Critical Junction
Please click here for a chart of Apple stock (AAPL).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of AAPL is being used to illustrate the point.
- Apple stock is the largest stock in the market, has heavy weight in indexes, and is the most beloved stock perceived by many as a safe stock. For this reason, whatever happens to Apple stock has a disproportionate impact on the entire stock market.
- The chart shows the Arora buy zone that helped newer members of The Arora Report buy AAPL near the recent lows resulting in large profits. Long time members are holding AAPL from $4.68. Buy zones are a billionaire and hedge fund technique that can significantly increase profits and lower risks. To learn about buy zones and more billionaire techniques, see Trade Management Guidelines from The Arora Report.
- The chart shows the trendline that held since the lows until Q2 earnings were released. The chart shows when SIlicon Valley Bank failure occurred. Due to the failure of Silicon Valley Bank and a few other banks at the same time, the Fed injected massive liquidity. Some of that liquidity went into Apple stock and drove the stock higher.
- Going into earnings, Wall Street was very bullish on Apple, and bullish investors were hoping to drive Apple stock to about $210 after earnings.
- The Arora Report warned you ahead of earnings that fundamentals were deteriorating. We wrote ahead of earnings:
From a fundamental perspective, the rise shown in AAPL stock on the chart has occurred with deteriorating earnings. If the consensus is correct, AAPL is on track for three quarters in a row of declining revenues.
- RSI shown on the chart shows a divergence. We wrote prior to earnings:
The chart shows RSI divergence. In plain English, this means that RSI went lower as the stock price went higher. From a technical perspective, this is a warning signal ahead of earnings.
- RSI on the chart shows that now Apple is oversold.
- The chart shows that Apple has now fallen to the top of the support zone.
- A major key for the entire stock market now is dependent on Apple not dipping much below the upper band of the support zone. If Apple bounces from here or after only a slight dip in the buy zone, it will be positive for the stock market. On the other hand, if Apple breaks below the support zone, it will be negative for the stock market.
- Prudent investors should pay attention to the market reaction to earnings from Datadog (DDOG). Datadog has been pushed by many as an AI stock. Earnings were better than expected, and the guidance, for the most part, was inline with consensus. And yet, the stock has fallen 19% in the early trade. The reason is that whisper numbers were much higher than the consensus due to exuberance over AI.
- In a significant negative development, Moody’s, one of the three major rating agencies, has cut credit ratings on ten U.S. banks due to office real estate exposure and higher funding costs. In their exuberance, the momo crowd has run up stocks of regional banks disregarding issues with real estate loans and higher funding costs. Moody’s also said that it may downgrade credit ratings of major U.S. lenders such as U.S. Bancorp (USB), Bank of New York Mellon Corp (BK), State Street Corp (STT), and Truist Financial Corp (TFC).
- Chinese exports fell by 14.5% year-over-year vs. 12.5% consensus. Exports to the U.S. fell by 23%. Exports to the E.U. and the Association of Southeast Asian Nations fell by 21%. These are the biggest drops since the start of the pandemic. Since China is the factory to the world, this indicates that the consumer demand for goods is falling.
- 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.
Raise Hedges
Hedges are being raised. Please scroll down to the protection band section. There will also be a separate post.
Magnificent Seven Money Flows
Money flows are negative in AAPL and Tesla (TSLA), Microsoft (MSFT), Meta (META), Amazon (AMZN), Nvidia (NVDA), and Alphabet (GOOG) in the early trade.
In the early trade, money flows are mixed in S&P 500 ETF SPY and 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 🔒 stocks 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 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 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.
Gold futures are at $1959, silver futures are at $22.80, and oil futures are at $80.45.
S&P 500 futures are trading at 4507 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 down 232 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.
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.
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.
