REACTION TO TESLA AND NETFLIX EARNINGS, WARNING FROM BIGGEST CHIP MANUFACTURER

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By Nigam Arora & Dr. Natasha Arora

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

Important Earnings

Please click here for a chart of Tesla stocks (TSLA).

Note the following:

  • The Morning Capsule is about the big picture, not an individual stock.  The chart of TSLA stock is being used to illustrate the point.
  • We previously wrote in yesterday’s Afternoon Capsule:
  • Investors are eagerly waiting for earnings from TSLA, IBM, and NFLX after hours.

  • The key for prudent investors will be if the momo crowd continues the pattern of ignoring the bad news in the earnings reports and buying on hope of better times ahead.

  • In the early trade, the momo crowd is not reacting to Tesla, IBM, and Netflix earnings as momo gurus expected.
  • The chart shows the gap down on Tesla earnings.
  • The chart shows a RSI divergence that correctly foreshadowed the dip on earnings.  In plain English, divergence means that RSI went down as price went up.
  • Both Tesla revenues and earnings were above the whisper numbers.  Whisper numbers were higher than the consensus numbers.
  • In The Arora Report analysis, looking under the hood, here are the important points about Tesla earnings:
    • The beat on earnings was mostly due to a large non-operating gain. 
    • Free cash flow was below consensus. 
    • Auto gross margin was 70 bps below consensus in spite of benefits from IRA credits.
    • Tesla will likely need to lower prices even further to generate the demand.
  • Most analysts are upgrading Tesla stock based on these earnings.
  • In addition to the earnings and revenue numbers, here are the key points that investors should be mindful of:
    • Musk sees a clear path to increase the value of TSLA stock by 5 – 10 times.
    • Musk believes that significant additional value will be created by autonomy.
    • Tesla is in talks with a major OEM to license FSD.
    • Tesla is open to licensing FSD.
    • Tesla expects to use both Nvidia (NVDA) and Dojo.
    • Tesla expects 100 times more training data for AI over the next 1.5 years.
  • NFLX stock is falling in the early trade as third quarter revenue projections are below consensus and overall, the earnings report is below the whisper numbers.
  • IBM earnings were in line with whisper numbers, but in spite of the AI hype, the stock is not moving higher in the early trade.
  • Prudent investors should pay attention to an important development.  Taiwan Semiconductor (TSM) is guiding Q3 revenue of $16.7B – $17.5B vs. $17.68B consensus.  TSM is the largest manufacturer of sophisticated chips and is a supplier to Apple (AAPL) and Nvidia.
  • In The Arora Report analysis, TSM projections should send a warning to the momo crowd that the demand for semiconductors is likely to be weaker in spite of the large total demand for AI applications.
  • For a tell, prudent investors should keep an eye on how the seven magnificent stocks react. The magnificent seven stocks are Apple (AAPL), Amazon (AMZN), Alphabet (GOOG, GOOGL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), and Tesla (TSLA).
  • As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.
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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 🔒 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 the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin has moved over $30,000.

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 up, and bonds are ticking down.

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.

Gold futures are at $1977, silver futures are at $25.32, and oil futures are at $75.81.

S&P 500 futures are trading at 4580 as of this writing.  S&P 500 futures resistance levels are 4600, 4713 and 4770: support levels are 4460, 4400 and 4318.

DJIA futures are down 8 points.

Protection Band And What To Do Now

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

Consider continuing to hold good, very long term, 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.

See also  WEEKLY STOCK MARKET DIGEST: WILL EXCITEMENT IN THE STOCK MARKET THAT DROVE S&P 500 TO ALL TIME HIGHS CONTINUE?

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.

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

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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