WALL STREET WRONG ON MICROSOFT AND GOOGLE, CHINA SELLING DOLLARS

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By Nigam Arora & Dr. Natasha Arora

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

Weak Earnings

Please click here for a chart of Microsoft (MSFT).

Note the following:

  • Yesterday after market close, earnings were released from Microsoft (MSFT), Alphabet (GOOG, GOOGL), and Texas Instruments (TXN) providing robust data points for objective analysis.
  • We previously shared with you that Wall Street positioning in MSFT and GOOG ahead of the earnings was positive.  The price action shows that understanding positioning can give you an edge.  For those who want to understand positioning and gain an edge, listen to the podcast “Market Mechanics: Positioning.”
  • The chart shows when MSFT earnings were released.
  • The chart shows that the first dip was bought by the momo crowd.
  • The earnings showed there was weakness in PCs, software, cloud, and overall corporate IT spending.
  • Our algorithms show that smart money sold right after the earnings, preventing a rally in the stock.
  • The VUD indicator is the most sensitive measure of net supply demand in real-time. The orange represents net supply and the green represents net demand.
  • The chart shows that the stock price drifted lower due to smart money selling going into the conference call, but the VUD indicator stayed positive due to aggressive buying by the momo crowd.  The chart shows the reaction in the stock on weak guidance.  The reaction was severe due to positive positioning ahead of earnings.  
  • The chart shows that the VUD indicator was solid orange, indicating net supply of stocks after guidance was given.
  • You may be wondering how is the momo crowd responding to broad weakness in IT as evidenced by MSFT earnings?
  • The momo crowd is buying PC, software, and cloud stocks in the early trade.
  • Why is the momo crowd buying these stocks in spite of weakness in their sectors?  Often, the momo crowd gets in the mode of buying whatever has news – good or bad.  This is one of those times. 
  • Alphabet earnings were also weak due to a broad weakness in advertising.  We have previously shared with you that advertising is one of the first cuts made by CEOs during a recession. 
  • In the Arora Report analysis, weakness in YouTube was expected but the weakness in the search advertising is concerning. 
  • How is the momo crowd responding to broad weakness in advertising?  They are buying shares of SNAP.  SNAP is dependent on advertising and is nowhere as robust as GOOG.  We previously shared with you that SNAP shares were crushed when the company was unable to provide fourth quarter guidance due to lack of visibility.  Please click here for a chart showing how SNAP responded to earnings.
  • TXN is a supplier of a broad range of semiconductors.  In The Arora Report analysis, weakness in PCs and phones was expected, but the concern is that the TXN report is showing broad weakness in the industrial sector.  Until now the industrial sector has been strong. 
  • How is momo crowd responding to the weakness in semiconductors?  They are buying semiconductors in the early trade.
  • Seagate (STX) is a major supplier of disk drives. Earnings released this morning are showing major weakness.
  • The momo crowd buys ahead of the events on hope strategy.  Now that they have been proven wrong on GOOG and MSFT, they are buying hoping for good earnings from Facebook (META) today and good earnings from Apple (AAPL) and Amazon (AMZN) tomorrow.
  • Looking ahead, PCE data will be released on Friday.   This is the Fed’s favorite inflation gauge.
    • The consensus for PCE is 0.3% month-over-month.
    • The consensus for core PCE is 0.4% month-over-month.
    • If the numbers come in line with the consensus, expect momo gurus to multiply 0.3% by 12 and attempt to run up the market saying that inflation is running at 3.6%. 
  • In spite of the selling in the early trade, keep in mind the following:
    • Seasonality is about to turn positive.
    • The stock market tends to run up going into midterm elections and after the elections.
  • The Fed meeting starts on November 1, and the rate decision will be on November 2.
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China

China is selling dollars to support the yuan.  There are also reports that Chinese banks continue to buy stocks on government orders.

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 🔒 gold 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 is seeing buying and is now over $20,000.

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 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.

Gold futures are at $1670, silver futures are at $19.46, and oil futures are at $86.34.

S&P 500 futures resistance levels are 3860, 3950 and 4000: support levels are 3770, 3630 and 3600.

DJIA futures are down 90 points.

Protection Bands And What To Do Now?

It is important for investors to look ahead and not in the rearview mirror.

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Consider continuing to hold 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.

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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.

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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