By Nigam Arora
To gain an edge, this is what you need to know today.
AI Disruption Fears (Fear Overtakes Greed)
Please click here for a chart of Salesforce stock (CRM).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of CRM stock is being used to illustrate the point. Salesforce is a component of the Dow Jones Industrial Average (DJIA). Salesforce is the biggest giant in customer relationship software.
- The chart shows when the institutional crowd ran up CRM stock on AI euphoria.
- Salesforce has an AI driven platform called Salesforce Agentforce that is designed to rapidly deploy AI agents.
- The chart shows the let down when the sales of Agentforce did not meet the very high expectations and the institutional crowd sold.
- The chart shows zone 1 has been a support zone until recently.
- The chart shows CRM stock repeatedly bounced off of the support zone. Institutions have been the primary buyers, hoping Agentforce would eventually succeed.
- The chart shows the breakdown below zone 1.
- The chart shows fear of AI disruption creeping up yesterday causing a major selloff. The selloff yesterday was widespread across the software, wiping about $300B in market value.
- The chart shows that volume on the selloff was high. This indicates distribution.
- In The Arora Report analysis, a vast majority of the selling in CRM stock is from institutions. The chart of CRM stock is an example of how at times institutions behave no different than the momo crowd. At times, institutions move like a herd of sheep, just like the momo crowd. Keep in mind, the momo crowd has two distinct segments:
- Retail momo crowd
- Institutional and professional money manager momo crowd
- Members of The Arora Report have benefited for nearly two decades from smart money flows. CRM stock’s fate has been foretold as there has not been any smart money buying.
- The proximate cause of yesterday’s selloff in software was Anthropic releasing a new AI legal tool and also releasing plugins for finance and customer service. On Monday, OpenAI released a new version of its tool called Codex that works similar to what Anthropic is building.
- In The Arora Report analysis, indiscriminate selling in software is wrong. As we have been sharing with you, many companies will be disrupted and that will offer opportunities from the short side. For example, ZYX Short has a new signal on LegalZoom (LZ). On the other hand, as software valuations come down, there will be many opportunities from the long side.
- ADP employment change data shows that the private sector added 22K jobs vs. 43K consensus in January.
- ISM Services Index data will be released at 10am and may be market moving. As we previously shared with you, ISM Manufacturing Index was a big surprise to the upside and triggered a stock market rally on Monday.
- Much anticipated earnings from Advanced Micro Devices (AMD) are below the consensus and whisper numbers. AMD stock is down about 10%.
- In the weight loss drug business, yesterday Novo Nordisk (NVO) stock experienced a major drop when NVO lowered its guidance due to competition in the U.S. This morning, Eli Lilly (LLY) reported earnings better than the consensus and whisper numbers and the stock is up about 8%. LLY is in the ZYX Buy Core Model Portfolio, long from an average of $318.45. It is trading at $1086 as of this writing in the premarket. This represents a gain of 241%.
- In Monday’s Morning Capsule, we shared with you that market structures were unstable due to negative gamma and market makers would move in whichever direction the market was moving, exacerbating the move. On Monday, the move was to the upside. Yesterday, the move was to the downside. In The Arora Report analysis, market structures continue to be unstable. The most unstable structures are in gold and silver. These unstable structures are amplifying the move up in gold ETF (GLD), silver ETF (SLV), and gold miner ETF (GDX).
- 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 Apple (AAPL) and Alphabet (GOOG).
In the early trade, money flows are neutral in Amazon (AMZN) and Microsoft (MSFT).
In the early trade, money flows are negative in Meta (META), Nvidia (NVDA), and Tesla (TSLA).
In the early trade, money flows are mixed 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. Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
API crude inventories came at a draw of 11.1M barrels vs. consensus of a build of 0.7M barrels.
The momo crowd is *** oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
So far, rally attempts in bitcoin (BTC.USD) have failed. Bitcoin is now trading below Michael Saylor’s company Strategy’s (MSTR) average price of $76,038.
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 6945 as of this writing. S&P 500 futures resistance levels are 7000, 7200, and 7500 : support levels are 6780, 6500, and 6256.
DJIA futures are up 66 points.
Gold futures are at $5076, silver futures are at $91.45, and oil futures are at $63.01.
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.
To take a free 30-day trial to paid services to gain access to more opportunities, please click here.
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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.
