By Nigam Arora
To gain an edge, this is what you need to know today.
Micron Earnings Ahead
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 shows that leading up to last quarter’s release, MU stock ran into zone 1.
- The chart shows that after the last earnings release, MU stock fell 41%. This was in spite of Micron beating earnings consensus by 20%, revenue consensus by 15%, and earnings guidance consensus by 20%.
- Trendline 3 on the chart shows that MU stock has been rising since hitting the low in July.
- The chart shows that over the last few days, MU stock is consolidating below the low band of zone 1.
- RSI on the chart shows MU stock can easily go either way.
- Micron will report earnings today after the regular session close.
- Micron whisper numbers have steadily been rising.
- In The Arora Report analysis, the probability is very high that Micron will report strong numbers. Prudent investors should watch how MU stock reacts to earnings. Keep in mind that last quarter, immediately after the release of earnings, MU stock rose initially but then fell later. In the process, the momo crowd was sucked in to buy after earnings, near the top. As MU stock proceeded to drop 41%, it hurt the entire AI trade. Typically, momo crowd accounts are not diversified beyond the AI trade and are heavily in call options as well as fully margined. As MU stock fell after last quarter’s earnings report, many momo crowd accounts were hit with margin calls, resulting in forced liquidations and account blowups.
- The idea of aggressively buying call options on whatever is moving up is so seductive that the momo crowd has a constant supply of newcomers that replace those whose accounts blow up.
- The momo crowd situation is going to become even worse as the momo crowd starts using AI agents. So far, the preliminary data is that the way the momo crowd uses AI agents is amplifying their sheep like behavior. They all go in the same direction, now more aggressively and faster than they could prior to using AI agents.
- In The Arora Report analysis, if MU stock stages sustained breakout above zone 1, the entire AI trade, and in turn the stock market, will likely move up. On the other hand, if MU stock drops, the drop will likely be cushioned by extremely aggressive momo crowd buying. The momo crowd is trained to buy every blip down because they believe stocks are going higher. The momo crowd also buys every blip higher because FOMO kicks in.
- Prudent investors should also be mindful that the momo crowd’s behavior is making it difficult for institutions to invest and trade based on deep analysis.
- AI valuations continue to rise. OpenAI, the maker of ChatGPT, intends to raise $30B at a valuation of $1.4T. As a reference, the last raise was at a valuation of $852.
- ADP is the largest private payroll processor in the country. ADP uses its data to provide a glimpse of the official jobs report that will be released on Friday at 8:30am ET. The just released ADP data is strong. ADP Employment Change came at 90K vs. 58K consensus.
- The U.S. economy is 70% consumer based. For this reason, prudent investors pay attention to personal income and personal spending. The data shows that even as consumer income drops, consumers are continuing to increase spending. Clearly, this is not sustainable over the long term. Here are the details:
- Personal spending came at 0.9% vs. 0.7% consensus.
- Personal income came at 0.2% vs. 0.4% consensus.
- PCE is the Fed’s favorite inflation gauge. The Bureau of Economic analysis has changed its calculation for PCE for computer software, legal services, and portfolio management. The expectation has been that the changes would reduce PCE by 0.2%. Inflation came weaker than expected. Here are the details:
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- Headline PCE came at 0.3% vs. 0.4% consensus.
- Core PCE came at 0.2% vs. 0.3% consensus.
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- GDP data is strong. Here are the details:
- Q2 GDP third estimate came at 2.2% vs. 1.5% consensus.
- Q2 GDP Deflator third estimate came at 6.4% vs. 6.3% consensus.
- In the early trade, there is buying in stocks as yields pull back after release of economic data.
- Today is the last day for quarter end window dressing and rebalancing. For details, please see the Morning Capsule from September 28.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the Arora Protection Band. The Arora Protection Band is one of the large number of unique edges that are available to members of The Arora Report.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Apple (AAPL), Amazon (AMZN), Alphabet (GOOG), Nvidia (NVDA), and Microsoft (MSFT).
In the early trade, money flows are negative in Meta (META) and Tesla (TSLA).
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 buying stocks in the early trade. Smart money is inactive 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. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the Arora Protection Band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
The Arora Report’s proprietary very, very short-term early stock market indicator is *** (To see the locked content, please take a 30 day free trial). 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. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
API crude inventories came at a build of 1.019M barrels vs. a consensus of a draw of 1.9M 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 seeing buying.
Markets
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.
S&P 500 futures are trading at 7760 as of this writing. S&P 500 futures resistance levels are 7795, 7831, and 7900 : support levels are 7733, 7626, and 7541.
DJIA futures are up 136 points.
Gold futures are at $4211, silver futures are at $61.41, and oil futures are at $90.70.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary Arora Protection Band from The Arora Report is very popular. The Arora 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.
