By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Human-Like Reasoning AI Ahead
Please click here for a chart of Nvidia stock (NVDA).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of NVDA is being used to illustrate the point.
- The chart shows that last week NVDA stock touched the top band of the support zone.
- RSI on the chart shows that NVDA was oversold when it touched the top band of the support zone. Oversold stocks tend to bounce. The chart shows this is exactly what was happening until yesterday.
- In yesterday’s Morning Capsule, we wrote:
In the early trade, the momo crowd is ignoring the data and aggressively buying the slight dip in AI stocks. The buying in AI stocks is due to front running a speech by Nvidia’s Jensen Huang. The buying is especially aggressive in Nvidia (NVDA).
- When Jensen Huang did not say anything new to run up NVDA stock, NVDA stock pulled back. After NVDA stock pulled back, a new momo guru narrative started taking hold. We wrote yesterday in a post in ZYX Buy and ZYX Allocation:
This afternoon, the momo crowd is again extremely aggressively buying semiconductor stocks as momo gurus’ new narrative takes hold. Momo gurus have all but anointed Harris as the next president after last night’s debate performance. Momo gurus’ new narrative is that Harris will not be harsh on China like Trump, and there will be no tariffs. This will provide an opportunity for semiconductor companies to sell more semiconductors to China.
- We also wrote:
In The Arora Report analysis, there are two major problems with the new momo guru narrative:
-
It is premature to anoint Harris as the next president.
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Even if Harris is elected president, she is not going to give away AI technology to China.
- As NVDA stock started moving up, analysts started reminding investors of the regurgitation of high demand from Huang’s speech and that Blackwell is coming. This brought in additional buying.
- The chart shows that when NVDA stock broke above the mini support zone (previously mini resistance zone).
- As NVDA stock broke above the top band of the mini support zone, technical analysts started declaring the correction in NVDA over. This brought in extremely aggressive buying in NVDA and other AI stocks going into the close.
- In the early trade prior to the release of PPI data, buying in NVDA and other AI stocks such as Advanced Micro Devices (AMD), Arm (ARM), Applied Materials (AMAT), Broadcom (AVGO), and Taiwan Semiconductor (TSM) was very aggressive.
- After release of PPI data, some selling is coming in to take advantage of the strength.
- Yesterday, we shared with you that CPI was hotter than expected. This morning Producer Price Index (PPI) came hotter than expected. Here are the details:
- Headline PPI came at 0.2% vs. 0.2% consensus.
- Core PPI came at 0.3% vs. 0.2% consensus.
- In The Arora Report analysis, after hotter PPI data, it will be safer for the Fed to not cut rates in September and wait for more data before cutting rates in October. Further, in The Arora Report analysis, the Fed should definitely not cut interest rates by 50 bps. Hotter inflation data is a negative for the stock market. However, right now, the momo crowd is oblivious and aggressively buying stocks.
- New AI developments are exciting, but investors need to do a 360 degree analysis.
- Jobless claims came at 230K vs. 229K consensus. This indicates that the jobs picture is staying strong. Jobless claims is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories. In plain English, adaptiveness means that the model changes itself with market conditions. Please click here to see how this is achieved. One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model. Most models on Wall Street are static. They work for a while and then stop working when market conditions change.
- Adding to the excitement this morning is that OpenAI, the maker of ChatGPT, is about to release a new AI model called Strawberry. Strawberry is capable of some human-like reasoning.
- OpenAI’s valuation has now vaulted to $150B.
- We are working on a podcast on Strawberry. The podcast on human-like reasoning in AI and resulting investing opportunities and perils will be available in Arora Ambassador Club. Please click here to get on the waitlist.
- 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.
Europe
The European Central Bank (ECB) has cut interest rates by 25 basis points. This is inline with the consensus.
The interest rate differential between the U.S. and Europe has now widened, putting pressure on the Fed to cut rates.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Alphabet (GOOG), Meta (META), and Nvidia (NVDA).
In the early trade, money flows are neutral in Apple (AAPL), Amazon (AMZN), and Microsoft (MSFT).
In the early trade, money flows are negative in 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 *** (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.
Gold
The gold market has become schizophrenic. Yesterday, gold fell on hotter CPI data. Today, gold is rising on hotter PPI data. In The Arora Report analysis, this kind of schizophrenic behavior often occurs before a decisive move, either to the upside or downside.
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
Bitcoin (BTC.USD) was seeing buying with tech stocks prior to the release of PPI data. However, after the release of PPI data, selling has come into bitcoin.
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 and bonds are range bound.
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 $2561, silver futures are at $29.42, and oil futures are at $68.07.
S&P 500 futures are trading at 5565 as of this writing. S&P 500 futures resistance levels are 5622, 5748, and 5926: support levels are 5500, 5400, and 5256.
DJIA futures are up 34 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.
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.
