By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
The Power Of Market Mechanics
Please click here for a chart of Meta stock (META).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of META stock is being used to illustrate the point.
- The chart shows a gap down in META on earnings.
- The chart shows an island reversal. An island reversal is a negative pattern.
- RSI on the chart shows that META is now oversold.
- Long time members of The Arora Report are long META from $49.92. This represents a gain of 920% for The Arora Report members to the point shown on the chart when the Arora signal was given to hedge or take partial profits.
- The chart shows that the Arora signal to hedge or take partial profits was given right close to the top before the big drop in the stock.
- Meta reported excellent earnings, better than the consensus and whisper numbers. Why is META stock down? The popular narrative is that the stock is down due to AI spending and Mark Zuckerberg’s comment that AI spending will not produce immediate profits. With the exception of momo gurus who do not do objective analysis, non-momo analysts know that AI spending is not going to produce immediate profits.
- In yesterday’s Morning Capsule, we highlighted that Tesla (TSLA) reported terrible numbers, but the stock jumped up on heavy AI spending on the prospect of future returns from AI spending. Please see yesterday’s Morning Capsule for details. For your convenience, click here for the chart of Tesla that was included in yesterday’s Morning Capsule. For the sake of full transparency, this chart has not been changed.
- Here is an important learning moment for investors. Why did TSLA stock jump 12% on bad numbers and heavy AI spending? Why did META stock fall 15% on excellent numbers and heavy AI spending? The real answer is Wall Street’s positioning.
- Going into TSLA earnings, Wall Street’s positioning was very negative.
- Going into META earnings, Wall Street’s positioning was extremely positive.
- Positioning often causes contrary moves. If you can fully grasp this one point of Wall Street mechanics, it will make a huge difference in the amount of money you extract out of the markets. Due to their high value, Wall Street professionals keep the secrets of Wall Street mechanics close to their chest. Fortunately for members of The Arora Report, you can easily learn Wall Street secrets from a number of podcasts on market mechanics in Arora Ambassador Club. Of particular interest here is a podcast titled “Market Mechanics: Positioning.” If you are interested in getting on the waitlist to join Arora Ambassador Club, please click here to fill out the form.
- Here are three notable earnings impacting the sentiment in the stock market:
- IBM (IBM) stock had been running up on AI excitement. IBM reported earnings less than the whisper numbers. IBM stock has fallen about 10%. As a full disclosure, ZYX Short took a short position in IBM and had a nice profit in a matter of minutes. Partial profits have already been taken.
- Construction machinery maker Caterpillar (CAT) reported earnings worse than whisper numbers.
- Pharmaceutical company Merck (MRK) reported earnings better than whisper numbers.
- Today, there will be an auction of $44B of seven year Treasuries. We will be carefully watching the results.
- In contrast to the prior two year auction (see yesterday’s Morning Capsule), yesterday’s record auction of $70B of five year Treasuries was poor but not a canary in the coal mine. Here are the details:
- High yield: 4.659% (When-Issued: 4.655%)
- Bid-to-cover: 2.39
- Indirect bid: 65.7%
- Direct bid: 19.2%
- Initial jobless claims came at 207K vs. 217K consensus.
- In The Arora Report analysis, the just released Q1 GDP indicates stagflation may be coming. Here are the details:
- GDP-Adv came at 1.6% vs. 2.4% consensus.
- Price index came at 3.1% vs. 3.0% consensus.
- Core price index came at 3.7% vs. 3.4% consensus.
- 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 negative in Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), META, Nvidia (NVDA), Microsoft (MSFT), and 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.
Gold
The momo crowd is *** in gold in the early trade. Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
The momo crowd is *** in oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is seeing selling.
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 up, and bonds are ticking down.
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 $2337, silver futures are at $27.35, and oil futures are at $82.62.
S&P 500 futures are trading at 5042 as of this writing. S&P 500 futures resistance levels are 5210, 5256, and 5400: support levels are 5020, 4918, and 4852
DJIA futures are down 475 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 seven 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.
