By Nigam Arora
Nvidia’s Unusual Move
Please click here for a chart of Nvidia (NVDA).
Note the following:
- The chart shows that NVDA gapped up above the low band of Zone 1 (resistance).
- RSI on the chart shows that NVDA has room to run.
- Prudent investors should carefully watch whether NVDA can break above Zone 1. If NVDA can break above Zone 1, it will be a tremendous positive.
- As an Arora Report member, you have been ahead of the curve. We have been sharing with you that the key question for investors is: Are these AI-driven earnings cyclical or secular? If the earnings are secular, the stock market has significant upside, with the S&P 500 potentially going above 10,000. On the other hand, if the earnings are cyclical, combined with the risk of the $40T U.S. debt, the stock market can easily fall 30% – 50%.
- Apparently, NVDA is aware of this key question about AI-driven earnings being cyclical or secular. NVDA took an unusual step during its conference call to answer the question. Typically, NVDA has not given forward guidance. During the conference call, NVDA gave the forward guidance we have been asking for.
- Initially, after the NVDA earnings report, the stock fell because earnings were below the whisper numbers. Here are the details:
- NVDA reported Q2 earnings of $2.22 vs. the $2.09 consensus estimate.
- NVDA reported Q2 revenue of $96.2B vs. the $92.18B consensus estimate.
- NVDA sees Q3 revenue of $108B ± 2% vs. the $103.9B consensus estimate.
- At the beginning of the conference call, NVDA dropped a bombshell. NVDA guided FY28 revenue growth to about 70%. NVDA said the growth projection would have been 100% if it were not for supply constraints.
- In The Arora Report analysis, there are five factors behind the blowout projections for FY28:
- SpaceX (SPCX) is ramping up at a much larger scale than expected.
- Neoclouds such as Nebius Group (NBIS), CoreWeave (CRWV), and IREN (IREN) are ramping up faster than expected.
- Traditional hyperscalers such as Amazon (AMZN), Google (GOOG), Microsoft (MSFT), and Oracle (ORCL) are planning to deploy more GPUs than expected.
- NVDA increasingly providing circular financing is helping.
- NVDA is pushing through price increases and thus generating more revenue.
- In The Arora Report analysis, if NVDA’s conference call is to be believed, the probability of earnings growth being secular is higher than the probability of earnings growth being cyclical. However, prudent investors should revisit the period prior to the internet crash in the stock market in 2000. Stock market darlings of the day, such as Lucent, Nortel Networks, and JDS Uniphase, were saying the same thing that NVDA is saying now. Just as NVDA is providing circular financing now, major vendors were providing significant vendor financing in the late 1990s. Ultimately, demand did not materialize to the level anticipated, and vendor financing became part of the undoing that led to the internet crash.
- As full disclosure, long time Arora members are long NVDA from $12.55 for a gain of 1671%. There is also an NVDA trade around position. A trade around position is a billionaire and hedge fund technique that can dramatically increase your returns and reduce your risk.
- In The Arora Report analysis, prudent investors should pay attention to the fact that the cost of tokens is going down, but the cost of compute for tokens is going up. On the surface, such a situation can lead to a death spiral. However, the present data may change over time as AI usage expands. This is an important data point that prudent investors need to keep an eye on.
- NVDA earnings are bringing aggressive buying into tech stocks in the early trade.
- In an important development, enterprise software giant Salesforce (CRM) is jumping on good earnings and an alliance with Anthropic. The concern was that Anthropic would eat into CRM’s business.
- In The Arora Report analysis, as bullish as NVDA’s conference call was, prudent investors should not forget the ticking bomb of the rapidly rising $40T U.S. debt. Investors need to manage the AI opportunity on one side and protect against the debt on the other side by diversifying their portfolios. The best way to manage this situation is to follow the Arora Protection Band and diversify across as many opportunities as possible, including commodities, international positions, and short trades.
- At Jackson Hole, Fed’s Schmid is saying Fed policy might be accommodative on the short end. In The Arora Report analysis, Fed policy needs to be restrictive on the short end based on the data.
- A market-moving speech from Fed Chair Kevin Warsh is tomorrow at Jackson Hole.
- Initial jobless claims came at 203K vs. 210K consensus, indicating that the jobs picture remains strong.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the Arora Protection Band. The Arora Protection Band is one of the large number of unique edges that are available to members of The Arora Report.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Apple (AAPL), Nvidia (NVDA), Microsoft (MSFT), and Meta (META).
In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), and Tesla (TSLA).
In the early trade, money flows are positive in S&P 500 ETF (SPY) and in 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) 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. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the Arora Protection Band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
The Arora Report’s proprietary 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. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). 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 *** oil in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) has once again spiked over $80,000 in sympathy with aggressive buying in tech stocks but has pulled back as of this writing.
Markets
Interest rates and bonds are range bound.
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.
S&P 500 futures are trading at 7711 as of this writing. S&P 500 futures resistance levels are 7831, 7900, and 8000: support levels are 7700, 7318, and 7194.
DJIA futures are down 125 points.
Gold futures are at $4635, silver futures are at $68.53, and oil futures are at $82.64.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary Arora Protection Band from The Arora Report is very popular. The Arora 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.
