By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Small Language Model
Please click here for a chart of Microsoft stock (MSFT).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of MSFT stock is being used to illustrate the point.
- The chart shows MSFT stock has climbed in December so far.
- The chart shows support and resistance zones for MSFT.
- RSI on the chart shows MSFT stock is overbought. Overbought stocks are susceptible to a pullback.
- We previously shared with you a major milestone in AI progress – human-like reasoning capabilities using chain link thinking in Model 4o from OpenAI.
- ChatGPT-4o is a large language model.
- In further AI progress, Microsoft has introduced Phi-4. Phi-4 is a small language model that outperforms GPT-4o in certain mathematical reasoning. Phi-4 is only a fraction of the size of GPT-4o. It appears that Phi-4 can do better in solving certain math problems compared to its teacher model GPT-4o. Also of note is that Microsoft trained Phi-4 mostly on synthetic data.
- The foregoing is important for investors as investors need to get ahead of the curve. In The Arora Report analysis, Phi-4 challenges the present belief that bigger is better.
- In The Arora Report analysis, small language models such as Phi-4 have a very bright future. Investors who want to stay current on AI developments as it relates to investments may consider staying tuned to the Morning Capsules and listening to the podcasts in Arora Ambassador Club. There is a fortune to be made in AI between now and 2030. However, it will not be in a straight line. At times, it will be treacherous.
- There is excitement in the stock market this morning as it was announced Friday after the close that AI software company Palantir (PLTR) and big bitcoin holder MicroStrategy (MSTR) are being added to the Nasdaq 100.
- We have previously written that one of the things Trump can do to reduce inflation from his policies is to attract foreign investment to the U.S. In the first sign of success for Trump, Japan’s SoftBank (SFTBY) CEO Masayoshi Son will announce at Mar-a-Largo a $100B investment in the U.S. over the next four years.
- There is also buying in the early trade as the market believes it is a certainty that the Fed will cut interest rates this week in spite of the data not supporting such a rate cut.
- Markets in the U.S. are not being impacted by weakness in Europe and Asia as there was powerful pumping of stocks in the media over the weekend. Retail investors tend to be influenced by the weekend pump and buy on Monday morning.
- 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.
France
Moody’s has cut France’s credit rating. French stocks and bonds are falling.
China
Markets all across the globe are being negatively impacted by weak retail sales data in China.
Retail sales in China came at 3.0% year-over-year vs 4.8% consensus.
Concern is building that the Chinese consumer is not spending in spite of stimulus measures by the government.
In The Arora Report analysis, investors should note the sharp contrast between U.S. consumers and Chinese consumers at this time. U.S. consumers are on a buying binge. Chinese consumers are holding back and are focused on savings.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Alphabet (GOOG), Meta (META), Nvidia (NVDA), and Tesla (TSLA).
In the early trade, money flows are neutral in Apple (AAPL) and Microsoft (MSFT).
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.
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 *** in oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Over the weekend, bitcoin (BTC.USD) ran over $106,000 on a rumor that Trump will announce the bitcoin reserve on day 1.
Markets
Interest rates are ticking down, and bonds are ticking up.
The dollar is range bound.
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 6144 as of this writing. S&P 500 futures resistance level is 6256 : support levels are 6131, 6017, and 5926.
DJIA futures are up 56 points.
Gold futures are at $2679, silver futures are at $31.17, and oil futures are at $70.83.
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.
