By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Aggressive Retail Investor Bets
Please click here for a chart of Alphabet stock (GOOG).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of GOOG stock is being used to illustrate the point.
- This stock market has been highly concentrated in the Mag Seven stocks.
- The stock market has been ignoring the risks in the Mag Seven.
- Here is an illustration of the risks to the Mag Seven stocks. Google has dominated search with over 90% of the market share.
- Microsoft’s (MSFT) Bing has only nominal market share. Microsoft has been gearing up to challenge Google with its Copilot. Many newcomers such as OpenAI and Perplexity are also going after Google. Now, Meta (META) the parent of Facebook and Instagram, plans to go after Google with its own web crawler. For those wanting a deeper understanding of these subjects, there are several podcasts in Arora Ambassador Club.
- The chart shows GOOG stock is nowhere near the high it made back in July. This has occurred at a time when S&P 500 has made a new high (SPX).
- The chart shows that GOOG stock has been struggling to even get into the lower resistance zone.
- The chart shows that yesterday GOOG stock broke into the lower resistance zone above the lower band of the resistance zone. The chart shows the attempt failed.
- The sum total of the foregoing for investors is that as dominant as the Mag Seven stocks are, there are challenges ahead for the Mag Seven. It is important for investors to diversify beyond the Mag Seven stocks. The easiest way to properly construct your portfolio is to take a close look at The Arora Report Model Portfolios.
- Alphabet reports earnings after the close.
- Even though the election outcome is uncertain, retail investors are aggressively betting their money that Trump will be the winner. Retail investors are rushing into the Trump trade. An example of a Trump stock is Trump Media & Technology Group (DJT). DJT stock is up about 16% as of this writing in the premarket after jumping 21.59% yesterday. Another example of Trump trade is cryptos.
- The momo crowd has been rushing into home builder stocks in anticipation of lower rates. However, as a member of The Arora Report, you knew ahead of everyone else that our call was that rates would rise. To the dismay of the momo crowd, the largest home builder in the U.S. D.R. Horton (DHI) sees FY25 revenues of $36B – $37.5B vs. $39.41B consensus. DHI is falling about 12% as of this writing in the premarket, causing huge losses for the momo crowd. DHI stock has been heavily promoted by momo gurus.
- Earnings from five Mag Seven stocks are ahead. Also ahead is important economic data.
- 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 Alphabet (GOOG) and Tesla (TSLA).
In the early trade, money flows are neutral in Amazon (AMZN), Microsoft (MSFT), and Meta (META).
In the early trade, money flows are negative in Apple (AAPL) and Nvidia (NVDA).
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.
Very Very Short-Term Indicator
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.
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
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 trading over $71,000 on aggressive retail investor bets that Trump will win.
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 5850 as of this writing. S&P 500 futures resistance levels are 5926 and 6017: support levels are 5748, 5622, and 5500.
DJIA futures are down 169 points.
Gold futures are at $2764, silver futures are at $34.30, and oil futures are at $67.87.
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, 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.
