By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Pay Attention To Sentiment
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.
- The chart of MU stock is important as it demonstrates the behavior of non-momo crowd investors towards tech stocks has changed, while the momo crowd is sticking to its old behavior.
- The chart shows momo crowd buying ahead of Micron earnings. Since the momo crowd buys on hopium and does not take risk into account, the momo crowd buys ahead of earnings. In contrast, smart money tends to control risk ahead of earnings, since earnings is a risk event.
- The chart shows the momo crowd aggressively running up MU stock after earnings to over $109. Micron earnings were better than the consensus and whisper numbers.
- If the same earnings were reported at any time over the last two years, this morning MU stock would have rocketed further, perhaps to $120. Instead, the chart shows MU stock has fallen to $99.45 as of this writing in the premarket, not only giving up its gain but also turning negative.
- In The Arora Report analysis, non-momo crowd investors took advantage of momo crowd buying and sold into the strength. The same pattern is being seen in many tech stocks.
- Micron is one of the three largest manufacturers of semiconductor memory in the world. Semiconductor memory has become the lifeblood of the modern economy.
- More important is that Micron produces the most advanced high bandwidth memory. High bandwidth memory is essential for AI.
- The reversal in MU stock is causing sentiment to dampen on all tech stocks.
- We have previously shared with you about Nvidia GTC. In terms of Nvidia suppliers, Micron is the biggest beneficiary of what we learned at Nvidia GTC about Nvidia’s (NVDA) new chips. Information from Nvidia GTC is negative for Advanced Micro Devices (AMD), Intel (INTC), and Broadcom (AVGO).
- Yesterday was Nvidia’s first ever Quantum Day. We wrote in yesterday’s Morning Capsule:
In The Arora Report analysis, there is a high probability of a sell-the-news reaction in quantum stocks. Quantum computing has the potential to be bigger than the internet.
- The Arora Report’s call about quantum computing has proven spot on. Quantum computing stocks such as IonQ (IONQ), Rigetti (RGTI), D-Wave Quantum (QBTS), Quantum Computing (QUBT), and Arqit Quantum (ARQQ) have experienced major drops.
- Adding to the pall for non-tech stocks this morning are earnings from FedEx (FDX). FedEx is a global shipping and logistics giant. FedEX earnings, in big part, depend on the strength of the global economy. FedEx reported earnings below consensus and whisper numbers. FDX stock is down over 9% as of this writing in the premarket.
- After FedEx hurting consumer discretionary stocks this morning are earnings from Nike (NKE). The Nike turnaround is going to take longer under its new highly respected CEO.
- Helping cushion in the drop in the stock market this morning is the expiration of futures this morning. Options will expire at the end of the day and may exert upward pressure. $4.5T of derivatives are expiring today.
- In the Afternoon Capsule after the Fed announcement, we shared with you that the stock market was running up on aggressive momo crowd buying. At a time when the stock market was running up on aggressive buying, we wrote:
In The Arora Report analysis, Powell has done a masterful job of comforting the stock market. However, prudent investors should note that the risks are not balanced anymore and the dot plot is mildly more hawkish. Right now, the momo crowd is buying stocks as Powell provides comfort. Smart money is not likely to find the same comfort that the momo crowd is finding.
- The foregoing call has proven spot on. The stock market has now given up all of the Fed rally and more.
- The stock market needs to make a stand right around here and go up. Otherwise, the momo crowd will incur major losses. In The Arora Report analysis, if the momo crowd incurs major losses, they will have less buying power to run up the stock market. Over the last two years, the momo crowd has been the primary force running up the stock market. It is important to pay attention to the momo crowd’s buying power.
- 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.
Germany
In a watershed event, for the first time since World War II, Germany approved 500B euros in infrastructure and defense spending in addition to a borrowing increase.
Magnificent Seven Money Flows
In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
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.
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.
Very Very Short-Term Indicator
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.
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) is range bound.
Markets
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.
S&P 500 futures are trading at 5665 as of this writing. S&P 500 futures resistance levels are 5748, 5926, and 6017: support levels are 5622, 5500, and 5400.
DJIA futures are down 363 points.
Gold futures are at $3042, silver futures are at $33.68, and oil futures are at $68.03.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary protection band from The Arora Report is very popular. The 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.
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.
