By Nigam Arora
To gain an edge, this is what you need to know today.
AI Cap Ex
Please click here for a chart of Google 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.
- The chart shows the spike up when Alphabet released earnings. Earnings were better than the consensus and whisper numbers.
- The chart shows steady decline in Alphabet stock after the initial spike up.
- The proprietary Arora Report VUD indicator on the chart shows net supply of Alphabet stock after earnings release. The VUD indicator is the most sensitive measure of net supply and demand in real-time. The orange represents net supply and the green represents net demand.
- Here are the reasons GOOG stock dropped after great earnings:
- Google is reporting a jaw dropping $175B – $185B for capital spend in 2026 vs. $115B consensus.
- Some investors are concerned about the high level of capital spend. Times have changed – until recently, the stock market rewarded higher capital spend on AI.
- GOOG stock is overowned. When a stock is overowned, there are not many buyers left to drive it higher and the slightest selling can accelerate.
- Going into earnings, sentiment on GOOG was extremely positive. Extremely positive sentiment is a contrary signal, i.e. sell. Keep in mind, sentiment is not a precise timing indicator.
- One of the tells for the entire stock market will be if bulls in Alphabet stock are able to stage a comeback and drive Alphabet stock to a new high.
- In The Arora Report analysis, Alphabet’s jaw dropping capital spend affirms what The Arora Report has been sharing with you since 2022. Our call since 2022 has been that AI is real and a fortune is to be made all the way to 2030. However, it will not be in a straight line, and at times it will be treacherous. Money is to be made from both the long and short sides as many companies get disrupted. Investors will need expert guidance.
- In the Morning Capsule before the stock market opened on Monday, The Arora Report shared with you that market structures in stocks, gold, silver, and bitcoin had become unstable. So far, that call has proven spot on. Market structures continue to be unstable:
- Last night, silver dropped 15% in a matter of seconds due to margin calls in China.
- Margin calls in China also hit gold.
- Expect the momo crowd in the U.S. that has been aggressively buying gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL) to be hit with margin calls.
- Bitcoin took another leg down when Treasury Secretary Bessent disappointed bitcoin promoters by saying he did not have the authority to bailout bitcoin. It was followed with more disappointment when Bessent said the government cannot tell banks to bailout bitcoin. Margin calls on bitcoin continue.
- In the U.S., the holders of bitcoin ETFs such as IBIT, BITO, FBTC, and GBTC are also the holders of silver ETF SLV and speculative tech stocks. Expect many such accounts to get margin calls.
- In The Arora Report analysis, the two main reasons behind the instability are:
- Wall Street’s positioning
- Momo crowd’s excessive use of leverage
- It is not only to the downside. Prudent investors need to keep in mind that due to the frequent negative gamma positioning of market makers, if any of these markets start going up, the move will be amplified to the upside.
- Jobless claims unexpectedly increased. Initial jobless claims came at 231K vs. 210K consensus. In The Arora Report analysis, the rise in jobless claims is temporary due to the extreme cold.
- In noteworthy news, Hims & Hers Health (HIMS) will start selling a $49 per month copycat version of Novo Nordisk’s (NVO) weight loss drug Wegovy. It is not clear how the government will enforce intellectual property laws here.
- 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 neutral in Apple (AAPL) and Nvidia (NVDA).
In the early trade, money flows are negative in Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), Meta (META), 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
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 seeing selling. Bitcoin is under $70K as of this writing.
Markets
Interest rates are ticking down, and bonds are ticking up.
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 6866 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 down 197 points.
Gold futures are at $4853, silver futures are at $75.63, and oil futures are at $63.47.
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.
