By Nigam Arora
To gain an edge, this is what you need to know today.
AI Excitement
Please click here for a chart of leveraged semiconductor ETF (SOXL).
Note the following:
- The chart shows yesterday’s SOXL open and close were very close to each other, but there was a wide range during the day. This pattern reflects indecision. The question after yesterday’s close was which way semiconductors would go today.
- The chart shows semiconductors are rallying big this morning. As of this writing in the early trade, bulls are winning, and bears are retreating.
- RSI on the chart shows semiconductors can easily run up.
- The buying in semiconductors in the early trade is spilling into the rest of the stock market.
- There are three reasons investors are excited this morning:
- The U.S. may potentially take a stake in AI companies. Sam Altman of OpenAI appears to be championing the idea. It appears President Trump is looking at the idea favorably.
- OpenAI has filed for IPO right on the heels of Anthropic.
- The upcoming SpaceX (SPCX) IPO
- As the momo crowd is bubbling over with excitement, prudent investors should be aware of a potential liquidity squeeze. We previously wrote:
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Prudent investors should also note that Alphabet chose to get ahead in its massive equity raise, ahead of massive IPOs from SpaceX (SPCX), OpenAI, and Anthropic. Together, along with other IPOs, about $400B of liquidity is being taken out of the stock market. Here are the key questions:
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How will this liquidity be funded?
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Will it be funded by investors selling other positions?
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Will this liquidity test bring the stock market down?
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- In the middle of triple manias about semiconductors, space, and options, the momo crowd is oblivious to Consumer Price Index (CPI) that will be released tomorrow. Prudent investors should pay attention that the consensus for headline CPI is 0.5%, which on an annualized basis translates to 6% inflation. The consensus for Core CPI is 0.3%, which on an annualized basis translates to 3.6% inflation. The Fed’s target is 2%. Further, keep in mind The Arora Report analysis that actual inflation appears to be running higher than reported numbers. Right now, the narrative in the stock market is two-fold:
- AI is so powerful that nothing else matters.
- The U.S. will eventually have a deal with Iran, bringing down oil and inflation.
- In The Arora Report analysis, prudent investors should get ahead. To get ahead, think about the impact of AI on inflation in two phases:
- The building phase of data centers is inflationary.
- In the second phase when AI sees widespread adoption, AI will be deflationary.
- 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 Amazon (AMZN), Alphabet (GOOG), Meta (META), Nvidia (NVDA), and Tesla (TSLA).
In the early trade, money flows are neutral in Microsoft (MSFT).
In the early trade, money flows are negative in Apple (AAPL).
In the early trade, money flows are positive 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. 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 7444 as of this writing. S&P 500 futures resistance levels are 7700, 7900, and 8000 : support levels are 7318, 7194, and 7032.
DJIA futures are up 108 points.
Gold futures are at $4362, silver futures are at $68.54, and oil futures are at $89.38.
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.
