By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Cooling AI Frenzy
Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).
Note the following:
- The chart shows that the breakout above the top band of support zone 1 has at least temporarily failed.
- The chart shows that the market has pulled back into support zone 1.
- RSI on the chart shows the market has lost its upside momentum.
- The chart shows that followers of traditional technical analysis have been whipsawed. Such investors bought when the market went above the 200 day moving average shown in yellow on the chart. The exuberance of investors was short lived as they sold when the market fell below the 200 day moving average.
- Prudent investors need to understand that these days smart money continuously makes profits by taking advantage of those who solely invest and trade based on traditional technical analysis.
- Market mechanics continue to bring significant buying. Without the significant buying from market mechanics, the market would have likely fallen by now to the lower band of support zone 1. Market mechanics at play include the following:
- Window dressing
- Rebalancing
- Positioning
- Short squeezes
- To the dismay of the stock market bulls, Fed’s favorite inflation gauge came in hotter than the whisper numbers but in line with the consensus. Here are the details:
- PCE came in at 0.3% vs. 0.3% consensus.
- Core PCE came in at 0.4% vs 0.4% consensus, but whisper numbers were around 0.3%.
- Prudent investors need to keep in mind that 0.4% annualized is 4.8%. This is a far cry from Fed’s target of 2% and Fed’s claim that inflation is close to the target.
- Since the US economy is 70% consumer based, prudent investors pay attention to personal income and spending. Here is the just released data:
- Personal spending came in at 0.4% vs. 0.6% consensus. This indicates that the consumer is pulling back.
- Personal income came in at 0.8% vs. 0.4% consensus.
- In The Arora Report analysis, the personal income headline is highly misleading. Incomes are stagnant and even declining at lower and middle income levels. Incomes are rapidly rising at the very high earner level.
- CoreWeave (CRWV) IPO was expected to be a hot IPO not too long ago. There were reasons for the IPO to be hot.
- CoreWeave is a highly respected provider of AI data centers.
- CoreWeave is backed by NVDA.
- NVDA was going to be the anchor buyer in the IPO.
- CoreWeave has access to the latest NVDA chips that others cannot get.
- CoreWeave’s clients include Microsoft (MSFT), OpenAI (AI), Nvidia (NVDA), Meta (META), and IBM (IBM).
- In a short period of time, the AI frenzy has cooled, leading to lower demand for the CoreWeave IPO. CoreWeave was expected to be priced in the range of $47 – $55. Due to the lack of demand, the IPO price has been slashed to $40 — in spite of NVDA anchoring the IPO with a $250M order. Further, initially the plan was to raise $2.7B from the IPO. Now CoreWeave is expected to raise only $1.5B.
- While lower and middle income consumers have been stretched, upper end consumers have been excessively spending. Now there is an indication from Lululemon (LULU) that upper end consumers have also started to pull back on their spending. LULU is a provider of athletic wear primarily to upper end consumers. The company reported good earnings but said it expects a revenue increase of only 5%-7% in 2025. As a reference, revenues grew 10% in 2024. This deceleration of revenues for LULU is the slowest growth rate on record. The company attributes the deceleration to consumers spending less due to concerns about inflation and the economy.
- In The Arora Report analysis, if high end consumers pull back, that will not be a good sign for the economy and in turn for the stock market.
- After President Trump announced tariffs on automobiles, the Wall Street’s take has been that automakers will be able to compensate for tariffs by raising prices. President Trump appears to be ahead of the game. Earlier this month, he warned car companies to not raise prices. This morning, concern is mounting that automakers will not be able to compensate for tariffs by raising prices for fear of punishment from President Trump.
- University of Michigan consumer sentiment will be released at 10am ET and may be market moving. As we have been sharing with you, consumer sentiment has been 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Tesla (TSLA).
In the early trade, money flows are negative in Amazon (AMZN), Nvidia, MSFT, Alphabet (GOOG), Meta, and Apple (AAPL).
In the early trade, money flows are negative 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 *** 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.
Very Very Short-Term Indicator
Our very, very short-term early stock market indicator is ***. Remember today is Friday and short squeezes tend to occur on Fridays. Buying due to market mechanics can easily trigger a vicious short squeeze running the market higher. 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
Gold futures have crossed above $3100 for the first time in history.
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 *** 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 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 5725 as of this writing. S&P 500 futures resistance levels are 5748, 5926, and 6017: support levels are 5622, 5500, and 5400.
DJIA futures are down 54 points.
Gold futures are at $3110, silver futures are at $35.35, and oil futures are at $69.87.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary protection band from The Arora Report is very popular. The 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.
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.
