STRONGEST EARNINGS FROM META BUT THE STOCK FALLS ON MARKET MECHANICS, ECONOMY RUNNING HOT

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By Nigam Arora & Dr. Natasha Arora

To gain an edge, this is what you need to know today.

Market Mechanics

Please click here for a chart of Meta stock (META).

Note the following:

  • The Morning Capsule is about the big picture and not an individual stock.  The chart of META is being used to illustrate the point.
  • Meta, a very important stock for the stock market, reported earnings after the close. The chart shows when earnings were reported.
  • The chart shows that the stock ran up on Meta announcing the strongest profits and sales in its history for the last quarter.
  • The chart shows when investors sold META when the company pointed out that Meta is an advertising business and the economic environment is uncertain.  As we have shared with you before, advertising goes down in a recession.  There is nothing new here.  The real reason the stock fell is because of two market mechanics – over-ownership and extremely positive positioning.  Market mechanics are powerful.  Understanding market mechanics gives you a big edge.  Wall Street professionals keep market mechanics close to the chest because of their high value.  Fortunately, you have an easy way to learn market mechanics by listening to the podcasts in Arora Ambassador Club.
  • As META stock fell, so did stock futures.
  • The reaction to Meta earnings in the stock market is an exact repeat of the market reaction to Alphabet earnings that we previously shared with you.
  • New data shows that the economy is running hot.
    • Q3 GDP-Adv came at 4.9% vs. 4.7% consensus.
    • Initial jobless claims came at 210K vs. 210K consensus.  Initial jobless claims is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories.  In plain English, adaptiveness means that the model changes itself with market conditions.  Please click here to see how this is achieved.  One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model.  Most models on Wall Street are static.  They work for a while and then stop working when market conditions change.
  • Durable orders also indicate a hot economy.  Here are the details:
    • Durable orders came at 4.7% vs. 1.5% consensus.
    • Durable orders ex-transport came at 0.5% vs. 0.3% consensus.
  • Stock futures were sold after Meta earnings, and there was more selling earlier this morning.  After the release of economic data showing a stronger economy, the momo crowd aggressively started buying stocks.  Prudent investors should note a change in the momo crowd behavior.  Usually, the momo crowd buys on weak economic data because it means to them that the Fed will lower interest rates.  Historically, the momo crowd sells on strong economic data. However, today, they are buying on strong economic data.
  • In The Arora Report analysis, the unusual momo crowd behavior today is due to the market falling to a support zone.  
  • 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.
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Magnificent Seven Money Flows

In the early trade, money flows are positive in Microsoft (MSFT).

In the early trade, money flows are negative in Tesla (TSLA), Apple (AAPL), Meta (META), Amazon (AMZN), and Nvidia (NVDA).

In the early trade, money flows are mixed 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.

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

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) continues to levitate on hopes of it adding a $1T market cap when a spot bitcoin ETF is approved.

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 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 $1989, silver futures are at $22.87, and oil futures are at $83.37.

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S&P 500 futures are trading at 4198  as of writing.  S&P 500 futures resistance levels are 4318, 4400, and 4460: support levels are 4000, 3950, and 3860.

DJIA futures are down 10 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.

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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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This post was just published on ZYX Buy Change Alert.

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Picture of Nigam Arora

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.

Picture of Dr. Natasha Arora

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.

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