By Nigam Arora
To gain an edge, this is what you need to know today.
Red Sea Blockade
Please click here for a chart of leveraged semiconductor ETF (SOXL).
Note the following:
- Semiconductors are the leading sector that has been driving the stock market higher. SOXL is the momo crowd’s favorite semiconductor ETF.
- The chart shows SOXL rallied to the low band of zone 2 (resistance).
- The chart shows that this morning in the early trade, SOXL is pulling back.
- Coming into this morning, there were high expectations that semiconductors would continue to rally. However, Houthis of Yemen entering the war is causing oil to rise and upsetting the markets. As a member of The Arora Report, you have been ahead of the curve. We wrote on Monday:
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Prudent investors should pay attention to an important geopolitical development – Houthis in Yemen are announcing a maritime embargo of Saudi Arabia. This development has two major implications:
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Houthis in Yemen stepping up will further strengthen Iran’s hand in negotiations with the U.S.
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The export of millions of barrels of oil through the Red Sea is at risk.
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- The news this morning is that Houthis have started enforcing the Red Sea blockade. There are reports that six ships have turned around. The choke point is the Bab el-Mandeb Strait that separates the Red Sea from the Gulf of Aden. Until now, Saudi Arabia has been able to shift large quantities of oil through the Red Sea. The prospect that this route will also be closed at a time when the Strait of Hormuz is effectively closed could cause a sharp rise in the price of oil.
- Important earnings after the market close today include Alphabet (GOOG), Tesla (TSLA) and Texas Instruments (TXN). International Business Machines (IBM) will also report earnings but has pre-announced.
- While Alphabet and Tesla earnings will catch most of the attention, prudent investors should pay careful attention to Texas Instruments earnings. Texas Instruments is the first major semiconductor manufacturer to report. Whisper numbers are running ahead of consensus numbers. Texas Instruments supplies mostly analog chips to a broad swath of industries. Texas Instruments is also a major supplier of power management chips to AI data centers. TXN is in ZYX Buy in the portfolio that surrounds the Core Model Portfolio. Members of The Arora Report are long TXN from an average of $192.70. It is trading at $285.75 as of this writing in the premarket, representing a 48% gain. Members of The Arora Report bought TXN at the bottom of the analog semiconductor cycle.
- Another analog semiconductor stock to pay attention to is Analog Devices (ADI). ADI is in the ZYX Buy Core Model Portfolio, long from an average of $83.25. It is trading at $374.10 as of this writing in the premarket, representing a gain of 349%.
- Since SpaceX (SPCX) has been added to several indexes, prudent investors should prepare for the volatility caused by a massive unlock of previously restricted shares. On August 6, $116B worth of SPCX stock will become eligible for selling. Short sellers see an opportunity. The estimate is that about 30% of tradeable SPCX shares are now sold short. Prudent investors should be careful about being influenced by the media. There is a fair probability that on August 6, SPCX stock could rally if a short squeeze starts, instead of falling big time as the media is predicting.
- 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.
Japan
The Japanese yen fell below 163 per dollar before recovering. This level last occurred in 1986. The proximate cause is rising oil due to Houthis blockading the Red Sea. Japan is a major oil importer, getting most of its oil from the Middle East.
The fall in yen is raising alarm bells in Japan. There are indications that the Bank of Japan is considering increasing interest rates faster.
Japan is important due to the carry trade. In the carry trade, funds have borrowed hundreds of billions of dollars in Japan to invest in the U.S., lately in the AI trade.
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 Alphabet (GOOG) and Microsoft (MSFT).
In the early trade, money flows are neutral in Amazon (AMZN), Nvidia (NVDA), and Meta (META).
In the early trade, money flows are negative in Tesla (TSLA) and Apple (AAPL).
In the early trade, money flows are negative 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) 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
API crude inventories came at a build of 2.603M barrels vs. a consensus of a draw of 1.5M barrels.
The momo crowd is *** oil in the early trade. Smart money is *** oil in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is range bound.
Markets
Interest rates are ticking up, and bonds are ticking down.
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 7516 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 down 100 points.
Gold futures are at $4123, silver futures are at $59.57, and oil futures are at $86.91.
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.
