By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Shocking Guidance
Please click here for a chart of Netflix (NFLX).
Note the following:
- The Morning Capsule is about the big picture and not individual stocks. The chart of NFLX is being used to illustrate the larger point that is important to your portfolios.
- NFLX has been the strongest momo stock. The chart shows that the stock has dropped 64% in about five months.
- The chart shows that the momo crowd was aggressively buying the stock and call options ahead of earnings. There were plenty of signs that earnings might be bad, but the momo crowd ignored them. The consistent characteristic of the momo crowd is that they only focus on the potential reward and ignore the risks.
- The chart shows very heavy volume yesterday before the earnings as the momo crowd piled into Netflix stock going into the risk event of earnings. In contrast, smart money was selling yesterday to lighten their positions ahead of earnings.
- The anecdotal evidence is that some momo portfolios have been 25% – 75% in Netflix stock.
- The chart shows that after earnings Netflix is gapping down 27%.
- Netflix guidance was shocking.
- Netflix lost 200K subscribers during Q1.
- Netflix guides a loss of 2M subscribers in Q2.
- Netflix has been a very expensive stock, so there is no valuation support.
- FAANG stocks have been very popular. The “N” in FAANG is Netflix. The other stocks are FB, AMZN, AAPL, and GOOG. MSFT is also grouped with FAANG stocks.
- Here are the key points.
- When momo stocks started falling, the momo crowd started buying more NFLX as they thought it was safe. Most analysts had buy ratings.
- The Arora Report did not fall for the bullishness in NFLX, and it was not in the Model Portfolio. The Arora Report has repeatedly given signals to short sell the stock for short term trades.
- Right now, investors are hiding in AAPL, AMZN, and MSFT because they deem them to be safe, just like they deemed NFLX to be safe five months ago.
- This underscores the importance of diversification.
- We advocate for diversification by strategies in addition to sectors. The Arora Report uses over 50 different strategies as appropriate.
- As an actionable item, review your portfolio and see if you are overly concentrated in some stocks such as AAPL. Take a look at the risk reward matrix in the Model Portfolio.
- AAPL is in the Model Portfolio, but there are three risks that the market is not taking into account.
- AAPL does big business in China. If the relationship between China and the United States deteriorates, AAPL may become a target of the Chinese government. On the positive side, AAPL has skillfully managed its relationship with the Chinese government.
- AAPL has become bigger than is prudent in many institutional portfolios. If something goes wrong, everyone would try to rush out of a small door.
- Many individual investors, on purpose, have lately been selling other stocks to buy more AAPL. Such investors typically have 50% – 100% of their portfolio in AAPL.
- To be absolutely clear, we have a higher target for AAPL and AAPL is in the Core Model Portfolio. The foregoing is meant to bring to your attention prudent portfolio construction practices.
- AAPL is in the Model Portfolio, but there are three risks that the market is not taking into account.
Europe
Car sales in Europe dropped by 19% in March. Investors need to keep an eye on car sales in the United States.
China
China is reiterating that it plans to strengthen its ties with Russia. Please see above for the China risk in AAPL stock that everybody is ignoring.
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 🔒 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
There is bullishness in bitcoin as it correlates with buying of aggressive speculative 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 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.
Gold futures are at $1951, silver futures are at $25.20, and oil futures are $103.02.
S&P 500 futures resistance levels are 4600, 4713 and 4770: support levels are 4460, 4400 and 4318.
DJIA futures are up 122 points.
Protection Bands And What To Do Now?
It is important for investors to look ahead and not in the rearview mirror.
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 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.
