By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Bounce From Oversold
Please click here for a chart of Microsoft stock (MSFT).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of MSFT stock is being used to illustrate the point.
- The chart shows the drop in Microsoft stock after reporting earnings. The drop was due to Azure growth coming less than expected. Azure grew by 29% vs. 30% consensus and 31% whisper numbers. On the surface 1% – 2% may not seem important until attention is paid to Microsoft’s valuation which is priced for perfection.
- The chart shows at 6pm yesterday, Nasdaq futures jumped, carrying MSFT and other stocks higher with them.
- We previously shared with you that tech stocks were oversold. Since 6pm yesterday, Nasdaq futures are on a tremendous run.
- In The Arora Report analysis, the strong bounce in Nasdaq futures is simply the result of oversold conditions and China loophole report.
- There is a China loophole report stating that the Biden administration is about the exempt the Netherlands, South Korea, and Japan from new export restrictions to China.
- In The Arora Report analysis, such a move will be a serious error in judgment. The reason is that the advanced equipment China needs to leapfrog the U.S. in semiconductors is made by ASML (ASML) in the Netherlands and Tokyo Electron in Japan.
- In The Arora Report analysis, there is a fair probability that the report is not truly as it seems and may simply be a manipulation by large funds who bought semiconductors near the highs and are now sitting on large losses to run up semiconductors so they can exit with smaller losses.
- The Bank of Japan finally hiked its interest rate. Yen is stronger. There is a position in yen ETF FYX in the ZYX Allocation Model Portfolio.
- For the time being, the power of the technical rally from oversold conditions and China loophole is overpowering the negative from Microsoft earnings and Bank of Japan’s rate hike.
- Also helping the market are two pieces of data:
- Employment Cost Index came at 0.9% vs. 1.0% consensus.
- ADP Employment Change came at 122K vs. 160K consensus.
- The market is looking at the foregoing weaker data as a positive for the Fed to cut interest rates.
- FOMC will make its policy announcement at 2pm ET followed by Powell’s press conference at 2:30pm ET.
- The consensus is that the Fed will leave rates unchanged but give indication of a rate cut in September.
- The options market is pricing in a 2+% move in the market after the Fed announcement.
- In The Arora Report analysis, the risk of the move is to both sides, even though on the surface it appears that the move should be to the upside. The reason for a potential downside move is that the market has been expecting the Fed to indicate a rate cut ever since November 2023 when Powell prematurely said rate cuts were coming. Now, there may be a ‘sell the news’ reaction.
- Among notable earnings, TMUS, DD, and AMD reported strong earnings. TMUS is in the ZYX Buy Core Model Portfolio. DD is in the portfolio that surrounds the Core Model Portfolio. A signal has just been given in ZYX Buy on AMD.
- BA has a new CEO. It is an important development due to the importance of BA to the U.S. economy. BA is in the ZYX Buy Core Model Portfolio.
- 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), Meta (META), Nvidia (NVDA), and Tesla (TSLA).
In the early trade, money flows are negative in MSFT.
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.
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
Israel has killed a Hamas leader on Iranian soil. There is potential for escalation. For this reason, oil is going higher.
API crude inventories came at a draw of 4.495M barrels.
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
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 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.
Gold futures are at $2464, silver futures are at $28.76, and oil futures are at $77.11.
S&P 500 futures are trading at 5543 as of this writing. S&P 500 futures resistance levels are 5622, 5748, and 5926: support levels are 5500, 5400, and 5256.
DJIA futures are up 84 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.
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.
Dr. Natasha Arora
Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.
