By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Growing Optimism
Please click here for a chart of Micron stock (MU).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of MU stock is being used to illustrate the point.
- In yesterday’s Morning Capsule, we wrote the following about Micron earnings in advance:
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Going into earnings, here are the key points:
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Whisper numbers are below the consensus numbers. This is an oddity among AI stocks. Among AI stocks, whisper numbers have consistently been higher than consensus numbers.
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Wall Street positioning is negative.
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The chart shows that MU stock has bounced off of the support zone.
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Historically, when the foregoing factors are combined, the stock goes up after earnings.
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- The chart shows a strong up move in MU after earnings were released after the market closed yesterday.
- The chart illustrates the value of understanding positioning and the big edge it gives to investors. Micron earnings were mediocre. The real reason behind the strong move is negative Wall Street positioning. If the same earnings would have come out a few months ago, when Wall Street positioning was very positive, the stock would have been down $20. The best way to understand positioning and other high value Wall Street mechanics is to listen to the podcasts in Arora Ambassador Club. To get on the waitlist, please click here to fill out the form.
- The chart shows that in the premarket, MU is breaking above the resistance zone. If MU closes above the resistance zone shown on the chart, this zone will become a support zone.
- The move up in MU stock is bringing in extremely aggressive buying in most semiconductor stocks in the premarket. In turn, the buying is becoming aggressive in most AI stocks in the premarket.
- We have been sharing with you details of China’s stimulus plan. Now, with a potential addition, China’s stimulus plan is about to become a bazooka.
- China is considering injecting up to one trillion yuan into state owned banks for the purpose of expanding their capacity to loan more money.
- Stocks in Hong Kong are up 4.2% and up 3.6% in Shanghai.
- The strong move up in Chinese stocks brought in optimism first to Asian stocks, then to Europe, and now to the U.S. in a round robin fashion.
- In The Arora Report analysis, deflation in China has helped U.S. inflation. Now all of the stimulus in China is going to start inflation in China. Some of that inflation is going to come back to the U.S. at a time when the Fed is aggressively cutting rates. All of this could spell trouble for the stock market down the road. However, for the time being, no one is connecting the dots as the party shifts to full swing.
- Weekly initial claims came at 218K vs. 224K consensus. This indicates that the jobs picture is strong
- Durable orders came stronger than expected. Here are the key points:
- Headline Durable Orders came at 0.0% vs. -2.9% consensus.
- Durable Orders Ex-Transportation came at 0.5% vs. 0.1% consensus.
- Just released GDP data shows that economic growth is strong. Here are the details:
- Q2 GDP Third Estimate came at 3.0% vs. 3.0% consensus.
- GDP Deflator Third Estimate came at 2.5% vs. 2.5% consensus.
- The foregoing economic data is bringing in aggressive buying in the stock market. The reason is that normally when the economy is this strong, the Fed is not aggressively cutting interest rates. Here, the economy is strong, and the Fed is aggressively cutting rates.
- Here is the key question for prudent investors: Did the Fed make a mistake with the 50 bps cut? Stay tuned for more.
- Powell comments are ahead and may be market moving.
- 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 Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and 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.
Gold
Gold futures have crossed above $2700 on Chinese demand.
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
Three reports are impacting oil this morning:
- Libya is looking at restarting oil production.
- Saudi Arabia is looking at increasing production in December.
- Iran is working with Hezbollah for a ceasefire plan with Israel.
In The Arora Report analysis, if all of these reports turn out to be true, this is a negative for 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 seeing buying along with tech stocks.
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 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 $2701, silver futures are at $32.65, and oil futures are at $68.08.
S&P 500 futures are trading at 5826 as of this writing. S&P 500 futures resistance levels are 5926 and 6017: support levels are 5748, 5622, and 5500.
DJIA futures are up 217 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.
