EXTREME POSITIONING IN NVIDIA TAKES A HIT, FED MINUTES AHEAD

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By Nigam Arora & Dr. Natasha Arora

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

Nvidia Positioning

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 stock is being used to illustrate the point.
  • Nvidia is at the center of the artificial intelligence revolution.  It is the best performing stock in the S&P 500 this year.
  • The chart shows a pullback yesterday.
  • The chart shows the volume yesterday was high when the stock dropped.  This is a negative.
  • RSI on the chart shows that NVDA is no longer overbought after the pullback.  RSI shows that the stock can go either way after earnings.
  • The chart shows extreme positive positioning in NVDA prior to the drop. The best way to understand extreme positive positioning is to think of a boat where everyone is on the same side.  It does not cause any problems as long as the waters are calm.  However, if a storm comes and everyone is on the same side, the boat sinks.  
  • The chart shows that yesterday, extreme positive positioning took a hit, resulting in a large drop in the stock.  The positioning took a hit, not because a storm came, but because investors started jumping off the boat in anticipation of a storm from the earnings that are ahead.
  • Understanding positioning can give you a big edge in the stock market.    Positioning is an important market mechanic that Wall Street professionals keep close to the chest because of its high value.  We disclose the secrets of positioning to you in the podcast titled “Market Mechanics: Positioning.”  The podcast is available in Arora Ambassador Club.
  • The options market is predicting an 11% move in NVDA stock in either direction after earnings.  Pause for a second and think about it – this is the gain or loss of $200B in market value.
  • We previously shared with you:

Less informed investors do not understand that stocks do not move based on published consensus earnings and revenue estimates.  Stocks move based on whisper numbers.  Whisper numbers are the numbers that analysts share privately, only with their best clients.  The whisper numbers for NVDA are at $5 for earnings and $22B for revenue.

  • After hours yesterday, sentiment took a hit when momo crowd favorite cybersecurity stock PANW reported earnings.  The stock has fallen 24.6% as of this writing in the premarket.  PANW was priced for perfection, and so is NVDA.
  • FOMC minutes will be released at 2pm ET.  Normally, FOMC minutes are market moving. However, today market movements are likely to be governed by position squaring by institutional investors ahead of NVDA earnings.
  • In The Arora Report analysis, what happens to NVDA will impact the entire stock market. 
  • 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.
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Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon (AMZN).

In the early trade, money flows are neutral in Apple (AAPL).

In the early trade, money flows are negative in NVDA, Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Tesla (TSLA).

In the early trade, money flows are negative 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.

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

API crude inventories came at a build of 8.52M vs. consensus of a build of 2.6M.

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

Bitcoin (BTC.USD) is seeing some selling in the early trade on nervousness about NVDA earnings.

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 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.

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Gold futures are at $2040, silver futures are at $23.11, and oil futures are at $76.91.

S&P 500 futures are trading at 4975 as of this writing.  S&P 500 futures resistance levels are 5020, 5210, and 5400 : support levels are 4918, 4852, and 4826.

DJIA futures are down 81 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.

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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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 seven 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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