By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Insatiable Demand For AI Chips
Please click here for a chart of semiconductor ETF (SMH).
Note the following:
- This is an important chart for three reasons.
- Semiconductors are the epicenter of the AI revolution.
- Semiconductors are the leading sector in the stock market.
- Semiconductors often provide an early indication of upcoming stock market moves.
- The chart shows a broadening top formation. This is a negative.
- The chart shows a big drop in semiconductors yesterday after ASML (ASML) earnings. Please see yesterday’s Morning Capsule for details.
- Taiwan Semiconductor (TSM) reported earnings better than consensus and whisper numbers. Earnings from TSM are important because TSM is the biggest independent semiconductor foundry and manufactures chips for Nvidia (NVDA), AMD (AMD), and Apple (AAPL).
- The chart shows that last time when TSM reported earnings, semiconductors broke out.
- This time, immediately upon the release of TSM earnings, there was a buying spike but the buying faded and the reaction is now muted as shown on the chart.
- TSM expects about 20% of its revenue from AI chips by 2028 and about 10% of its revenue this year to be from AI.
- Of importance is that TSM says that it plans to maintain its capital expenditure of $28B – $32B this year.
- This is an important data point because after ASML earnings yesterday, many analysts were projecting a drop in capital expenditure on semiconductor manufacturing equipment.
- The new data point is that TSM CEO C.C. Wei said that there is an insatiable AI related demand for energy efficient computing power. To some investors, the data from ASML earnings and TSM earnings is contradictory. Prudent investors know that the stock market always has crosscurrents with contradictory data points. Prudent investors pay attention to the data points that support their position and even more attention to the data points that go against their position. In contrast, the momo crowd exaggerates data points that support their position and ignores the data points that go against their position.
- The broadening top pattern runs counter to insatiable demand. This again shows crosscurrents. The protection band takes into account hundreds of crosscurrents.
- Loretta Mester, Cleveland Fed President, is saying that the Fed should not be in a hurry to cut rates.
- There is significant Fed speak ahead. The Fed’s John Williams, Michelle Bowman, Susan Collins, and Raphael Bostic are speaking.
- Initial jobless claims came at 212K vs. 215K consensus. This indicates that the employment picture is strong. Initial jobless claims is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories. In plain English, adaptiveness means that the model changes itself with market conditions. Please click here to see how this is achieved. One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model. Most models on Wall Street are static. They work for a while and then stop working when market conditions change.
- Yesterday, smart money sold into the strength generated by momo crowd buying. This morning, the momo crowd is aggressively buying the dip. It is yet to be seen how smart money reacts.
- Of important note is that money continues to flow out of AAPL. If you own AAPL stock or want to own AAPL stock, consider listening to the two part podcast series titled “MAXIMIZING RISK ADJUSTED RETURNS FROM AI IPHONE OPPORTUNITY.” For access to the series, please fill out the form below.
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Meta (META), and Nvidia (NVDA).
In the early trade, money flows are neutral in Alphabet (GOOG) and Microsoft (MSFT).
In the early trade, money flows are negative in Apple (AAPL) 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.
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
Oil was hit hard yesterday after EIA data showed that inventories were building.
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 trading around $62,000 as of this writing. Many recent retail investors, who were lulled into buying above $70,000 on pitches about bitcoin halving from bitcoin whales’ propaganda machine, seem disappointed.
Those who are serious about making money in bitcoin should consider listening to the podcast titled “BITCOIN HALVING – SIX SECRETS WHALES DO NOT WANT YOU TO KNOW” in Arora Ambassador Club.
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 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.
Gold futures are at $2402, silver futures are at $28.67, and oil futures are at $82.55.
S&P 500 futures are trading at 5072 as of this writing. S&P 500 futures resistance levels are 5210, 5256, and 5400: support levels are 5020, 4918, and 4852.
DJIA futures are up 114 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 seven 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.
