By Nigam Arora
To gain an edge, this is what you need to know today.
Market Character Shift
Please click here for a chart of ASML stock (ASML).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of ASML stock is being used to illustrate the point. Without ASML, the present AI revolution may not have come to pass.
- Dutch company ASML holds a monopoly in extreme ultraviolet lithography machines, which are critical for manufacturing the world’s most advanced semiconductors, including AI chips. These highly sophisticated machines cost approximately $200 million each, while the latest generation can cost as much as $400 million. ASML’s monopoly makes it one of the most important companies in the global semiconductor supply chain.
- The chart shows that after earnings ASML stock is trading in a wide range around the top band of zone 2 (support).
- RSI on the chart shows ASML stock is oversold.
- In The Arora Report analysis, the key observation for prudent investors from the chart is that in spite of great earnings, very bullish commentary, and an oversold condition, ASML stock is not rallying.
- Here are the key points from the bullish commentary:
- ASML does not expect the planned supply to meet customer demand in both 2027 and 2028. Some customers are wanting to place orders for 2029 and 2030.
- ASML is in a position to raise prices.
- ASML earnings are excellent. Here are the details:
- Q3 earnings came at euro 12.95 vs. euro 10.78 consensus.
- Q3 revenues came at euro 11.66B vs. euro 11.62B consensus. This is a 55.2% year-over-year increase.
- For Q4, ASML is guiding euro 14.2B – 15.2B vs. euro 14.02B consensus.
- In The Arora Report analysis, the stock market’s reaction to ASML earnings shows that in this phase of AI, the stock market character is changing. In spite of great earnings from ASML, semiconductors are seeing selling pressure this morning.
- Further in The Arora Report analysis, prudent investors should note that the demand for ASML equipment is coming from semiconductor companies. The concern among smart money is not the demand from semiconductor companies. Smart money’s concern is demand from customers of hyperscalers and datacenter companies.
- All of the foregoing is another data point showing the character of the stock market in this next phase of AI is shifting. All investors should consider developing deeper knowledge of the shift. The best way to develop this knowledge is to listen to the podcast series “The Next Phase Of AI” in Arora Ambassador Club.
- Anthropic’s Investor Day is ahead. The data from Anthropic’s Investor Day may be market moving.
- The momo crowd was aggressively buying stocks ahead of the release of CPI data. The momo crowd almost always buys on hopium ahead of key events because the momo crowd focuses on potential rewards and does not take risk into account. In contrast, smart money tends to trim ahead of key events to reduce risk.
- Consumer Price Index (CPI) squashed the momo crowd’s hopium. In the early trade, significant selling is coming into the market, especially in AI stocks, after the release of CPI data. CPI came hotter than expected. Here are the details:
- Headline CPI came at 0.6% vs. 0.6% consensus.
- Core CPI came at 0.3% vs. 0.2% consensus.
- The Fed’s Beige Book will be released at 2pm ET and may be market moving.
- Producer Price Index (PPI), retail sales, and initial jobless claims will be released tomorrow at 8:30am ET.
- 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 Microsoft (MSFT), Alphabet (GOOG), and Apple (AAPL).
In the early trade, money flows are neutral in Amazon (AMZN).
In the early trade, money flows are negative in Meta (META), Nvidia (NVDA), and Tesla (TSLA).
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
Gold is being sold on hotter CPI.
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
Oil continues to rise as Houthi’s continue to attack Saudi Arabia.
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 being sold on hotter CPI.
Markets
Interest rates are ticking up, and bonds are ticking down.
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.
S&P 500 futures are trading at 7822 as of this writing. S&P 500 futures resistance levels are 7831, 7900, and 8000 : support levels are 7795, 7733, and 7626.
DJIA futures are down 155 points.
Gold futures are at $4112, silver futures are at $57.07, and oil futures are at $95.56.
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.
