By Nigam Arora
Hidden Margin Debt Danger
Please click here for a chart of Sandisk (SNDK).
Note the following:
- Sandisk (SNDK) is important because it has been a leading stock due to explosive NAND memory demand for AI. Sandisk also has been one of the momo crowd’s favorite stocks.
- The chart shows SNDK stock rose rapidly until June 2026.
- The chart shows that SNDK dropped 57% from high to low.
- The chart shows that SNDK stock also rallied over the last few days when a huge stock market rally was triggered by the collapse of the $45B Situational Awareness Fund, which lost 67% in July.
- The chart shows that SNDK stock has dropped again after reporting earnings.
- To build the foundation, the history of SNDK is in order: SNDK was spun off from disk drive maker Western Digital (WDC) on February 21 2025. On February 21 2025, WDC stock closed at $51.93, and SNDK closed at $50.37 on a when-issued basis. On April 7 2025, intraday SNDK stock fell to $27.89. Since then, WDC stock has traded as high as $799.87 on June 18 2026, and SNDK stock has traded as high as $2354.39 on June 22 2026. WDC stock has also been a leading stock, just like SNDK.
- SNDK earnings disappointed; here are the details:
- SNDK reported Q4 EPS of $39.25 vs consensus $34.51 and whisper number of about $38.
- SNDK reported Q4 revenue of $8.97 B vs consensus $8.39B and whisper number of about $9B.
- SNDK projects Q1 EPS of $44 – $46 vs consensus of $44.21 and whisper number of about $50.
- SNDK sees Q1 revenue of $10.3B – $10.8B vs consensus of $10.62B.
- Here is the most important point for investors: SNDK stock traded as low as $27.89 not that long ago, and now for the next quarter SNDK is projecting EPS of $44 – $46. In little over a year from the low, SNDK is earning in one quarter more than the entire value of the company at the low.
- Just like SNDK, WDC also reported great earnings and great growth but still disappointed high expectations, here are the details:
- WDC reported EPS $3.56 vs consensus of $3.23
- WDC reported Q4 revenue of $3.75 B vs consensus of $3.7B
- WDC projects Q1 EPS of $3.85 – $4.15 vs $3.77 consensus.
- WDC sees Q1 revenue $4B – $4.2B vs $4.04B consensus.
- So far in the early trading, the stock market is not focusing on massive earnings growth at disk drive manufacturer WDC and NAND memory manufacturer SNDK, and insatiable demand for memory and disk drives for AI. The market is focusing on WDC and SNDK missing whisper numbers. SNDK is being punished with a drop of 10.38% and WDC with a drop of 14.48% in the premarket.
- As a The Arora Report member, you have been ahead of the curve. We have repeatedly warned when these stocks were trading near the highs that, due to a number of factors, these stocks were likely to drop.
- In The Arora Report analysis, here is an important observation that every AI investor needs to pay attention to. AAPL is a big NAND user. AAPL stock is trading at a forward P/E of about 34.1, but SNDK stock is trading at a forward P/E of 5.65 based on the price drop this morning. There is a huge dichotomy here. How this dichotomy is resolved will have a significant impact on the stock market. Most investors are missing the point — there can easily be 30% – 50% upside or downside in this market. The determining factor will be if AI-driven growth turns out to be secular or cyclical. For those who want next-level knowledge of this very important issue, listen to the podcast titled “THE NEXT PHASE OF AI: WHY WALL STREET GETS IT WRONG AND HOW EXCEPTIONAL INVESTORS STAY AHEAD PART 1”. The podcast in the Arora Ambassador Club.
- Given that 30% – 50% moves can occur in the stock market in the coming years in either direction, it is easy for the momo crowd. The reason is the momo crowd focuses only on the upside and stays oblivious to the downside, but for prudent investors who understand that risk and reward are two sides of the same coin, the potential large moves are difficult to handle. Fortunately for The Arora Report members, money can be made while controlling the risks, irrespective of whether the earnings turn out to be secular or cyclical by focusing on Arora Protection Band. Arora Protection Band is adaptive, i.e., it changes itself with market conditions and is based on the ZYX Allocation Model with more than one hundred inputs across ten categories.
- In addition to the uncertainty about AI-driven earnings, prudent investors should also pay attention to margin debt and market structure issues.
- Regarding market structure, we have been sharing with you that lately the US market, especially semiconductor trade, has been following the South Korean stock market; prior to this shift, historically the South Korean market followed the US market. The South Korean market these days is primarily driven by two memory manufacturers, SK Hynix (SKHY) and Samsung (SSNLF).
- In The Arora Report analysis, the South Korean market is simply not big enough and also does not have the market structure to accommodate the two giant memory manufacturers and in turn volatility is carrying over into the U.S. stock market. Of special note is that overnight SK Hynix stock fell 30% in a flash crash in South Korea on the NextTrade exchange.
- In The Arora Report analysis, another danger that mainstream media is oblivious to is hidden margin debt. Now, the world’s smartest banker, Jamie Dimon, CEO of JPMorgan Chase (JPM) is warning that hidden margin debt is very high and poses danger.
- Jobless claims came at 199K vs 200K consensus.
- 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 Nvidia (NVDA).
In the early trade, money flows are neutral in Meta (META) and Apple (AAPL).
In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), Microsoft (MSFT), 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 *** stocks 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. 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
The momo crowd is *** in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is seeing light selling.
Markets
Interest rates are ticking up, and bonds are ticking down.
The dollar is slightly 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 7750 as of this writing. S&P 500 futures resistance levels are 8000, 7900; support levels are 7700, 7318, 7194.
DJIA futures are up 97 points.
Gold futures are at $4297, silver futures are at $61.42, and oil futures are at $76.62.
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.
