By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
iPhone 15 Launch
Please click here for a chart of Apple stock (AAPL).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of Apple stock is being used to illustrate the point.
- The chart shows the drop in Apple stock on the news of China banning government workers from using iPhones.
- The chart shows Apple stock is at the top of the support zone.
- RSI on the chart shows Apple stock is neither overbought nor oversold going into the iPhone 15 launch. This is unusual. Historically, Apple stock gets overbought just before the launch of a new iPhone model.
- The chart shows that Apple stock was on its way to becoming overbought when the news from China hit.
- Apple stock is extremely important to the entire stock market because Apple has a weight of about 7.5% in S&P 500 and about 10.8% in Nasdaq 100. On top of that, there are a large number of popular companies that are Apple suppliers and tend to move with Apple stock.
- Sentiment about technology stocks is very important to the entire stock market. Moves in Apple stock have a disproportionate effect on the sentiment.
- Many market participants have been using Apple stock this year to park uninvested cash in lieu of a money market fund. If Apple stock falls, such cash will flee the stock, exaggerating the fall.
- In The Arora Report analysis, one of the most important items that prudent investors need to keep an eye on is how the iPhone 15 launch tests rising nationalism in China over the iPhone as a status symbol.
- iPhone sales in China are very different from the U.S. and Europe. Almost no one in the U.S. buys the iPhone as a status symbol. However, in China, a large number of iPhone buyers are buying the iPhone not because they love the iPhone but because it shows they are wealthy.
- Until now, if Chinese wanted a 5G phone, they did not have many made in China options. Now with the launch of Huawei’s Mate 60 Pro, they have a choice. By many accounts, Mate 60 Pro is better than iPhone 15.
- Since government employees have been banned from using iPhones, will these government employees recommend to their friends and family to not buy iPhones?
- The foregoing is very important as about 20% of Apple’s sales and profits come from China.
- China sales are even more important than it appears on the surface because in the U.S. and Europe, the iPhone market is saturated. In view of Apple’s declining revenues quarter after quarter, Apple needs growth in China.
- Apple touts growth in countries like India and Indonesia. However, in absolute terms, these numbers are small.
- Traditionally, Apple stock falls after the launch of a new model. However, this time is different because Apple did not run up going into the launch due to the China news. Prudent investors should carefully watch the reaction to the iPhone 15 launch. The reaction will be a tell.
- Even if you invest only in the U.S., you cannot escape implications of the breakthroughs in semiconductors and AI that are occurring in China. What happens in China will have a major impact on your portfolio over the next decade. Therefore, it is important to develop a better understanding of where China is going. Listen to the podcast titled “Implications Of Chinese Breakthrough For Investors – Apple Example” in Arora Ambassador Club.
- Expect the momo crowd to also buy ahead of the all important CPI release tomorrow.
- 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 Apple, Meta (META), and Tesla (TSLA).
In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), and Alphabet (GOOG).
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.
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.
The momo crowd is *** oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin (BTC.USD) is seeing aggressive buying as bitcoin bulls believe the support has held.
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 and bonds are range bound.
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.
Gold futures are at $1931, silver futures are at $23.28, and oil futures are at $88.54.
S&P 500 futures are trading at 4524 as of this writing. S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.
DJIA futures are down 113 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 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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