By Nigam Arora
To gain an edge, this is what you need to know today.
Important Earnings Ahead
Please click here for a chart of Cisco Systems stock (CSCO).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of CSCO stock is being used to illustrate the point.
- Cisco is important because it is an example of a legacy company that has been rerated due to surging demand from AI data centers for its networking equipment.
- The chart shows CSCO stock has surged about 50% this year. Cisco has been the number one stock in the Dow Jones Industrial Average year to date.
- The chart shows the drop after earnings. Here are the important insights from Cisco earnings for prudent investors:
- Cisco reported earnings and revenues better than consensus and whisper numbers. Cisco is also guiding earnings and revenues above consensus and whisper numbers.
- The momo crowd was aggressive buying CSCO stock ahead of earnings.
- Upon release of earnings, the momo crowd ran CSCO stock up to $134.23.
- Smart money sold into the strength. CSCO is trading at $115.70 as of this writing in the premarket.
- The commentary from Cisco is very positive and shows surging AI demand.
- Why would smart money sell into the strength on outstanding earnings? The reason smart money sold is because smart money digs deep and found the gross margin for the quarter was 66.3% vs. 68.4% last year.
- Wall Street is uniformly coming to Cisco’s defense and raising targets.
- For prudent investors, Cisco earnings provide two important learning points:
- Smart money does not follow Wall Street’s widely published research. Smart money knows that anything that is widely published offers no edge.
- Smart money has its fingers on the trigger and is ready to act to protect profits in case the AI trade fizzles out. This is in contrast to the momo crowd that does not take risk into account.
- In The Arora Report analysis, the foregoing behavior of smart money has much wider implications. Since smart money pays attention to the risk, smart money gets progressively richer by holding on to most of the profits. In contrast, the momo crowd rides the rollercoaster of making a lot of money when euphoria is raging and then loses it all when the inevitable pullback happens. The reference to the recent loss of 67% in the month of July by the fund Situational Awareness in spite of some risk controls is a case in point.
- There is another important lesson for prudent investors from The Arora Report signals to buy CSCO at an average of $35.92. At the time of The Arora Report signal, investors hated CSCO stock, and the stock market left it for dead. By buying at that time, members of The Arora Report took very little risk. Now, CSCO stock is trading at $115.70 as of this writing in the premarket, representing a gain of 222%. In addition to the price gain, members of The Arora Report have all along been earning 4.68% dividend yield on the original buy price.
- As a member of The Arora Report, you are already ahead of the curve by following the Arora Protection Band. The Arora Protection Band offers an easily actionable, data driven indicator that takes into account almost everything smart money does.
- There is an extremely important earnings report after the market close today. The earnings report is from Applied Materials (AMAT). Applied Materials is one of the largest semiconductor equipment manufacturing company in the world. Applied Material’s earnings provide great insights into the sentiment among the managements of semiconductor companies.
- As a full disclosure, members of The Arora Report are long AMAT from an average of $16. It is trading at $549.00 as of this writing in the premarket, representing a gain of 3331%.
- One of the momo crowd’s favorite chip stocks has been Cerebras Systems (CBRS). Of note is that CBRS is down about 17% after reporting earnings.
- Speculation is building that the Anthropic IPO will be larger than the SpaceX (SPCX) IPO.
- Producer Price Index came cooler. Here are the details:
- Headline PPI came at 0.0% vs. 0.1% consensus.
- Core PPI came at 0.2% vs. 0.3% consensus.
- Prudent investors need to look below the headline of PPI. PPI ex-food, energy, and trade came at 0.4% vs. 0.3% consensus. Note that this number is hotter.
- Initial jobless claims came at 209K vs. 205K 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 Apple (AAPL), Alphabet (GOOG), Meta (META), Microsoft (MSFT), and Nvidia (NVDA).
In the early trade, money flows are neutral in Amazon (AMZN).
In the early trade, money flows are negative in Tesla (TSLA).
In the early trade, money flows are positive in S&P 500 ETF (SPY) and neutral 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 *** in 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 *** oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is range bound.
Markets
Interest rates are ticking down, and bonds are ticking up.
The dollar is weaker.
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 7789 as of this writing. S&P 500 futures resistance levels are 7900 and 8000 : support levels are 7700, 7318, and 7194.
DJIA futures are up 192 points.
Gold futures are at $4419, silver futures are at $65.34, and oil futures are at $81.21.
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.
