By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Strong Data
Please click here for a chart of Walmart stock (WMT).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of WMT stock is being used to illustrate the point.
- Three news pieces of data have triggered aggressive buying in Nvidia (NVDA) and AI stocks.
- The three new pieces of data are:
- Walmart earnings
- Jobless claims
- Retail sales
- Investors are building position in NVDA stock ahead of earnings on August 28. As NVDA stock goes higher, it brings along other AI stocks.
- The chart shows a gap up on the release of WMT earnings this morning.
- The chart shows there was also a gap up after WMT earnings were reported last quarter.
- RSI on the chart shows that WMT is now overbought. Overbought stocks tend to pullback.
- Walmart earnings are important due to its sheer size and because it gives a good picture of consumer sentiment. Here are the key points from Walmart’s earnings:
- Walmart is not seeing consumer weakness. This data is contrary to other recent pieces of data. Smart money is always analyzing both sides. In contrast, the momo crowd pays attention only to the data that supports its position and ignores the rest.
- Weight loss drugs are contributing to healthy sales.
- High income earners have shifted to shopping at Walmart.
- Walmart reported EPS of $0.67 vs. $0.65 consensus for Q2.
- Walmart is projecting EPS of $0.51 – $0.52 vs. $0.54 consensus for Q3.
- Walmart is raising FY25 EPS to $2.35 – $2.43 vs. $2.23 – $2.37 prior.
- WMT is in the ZYX Buy Model Portfolio. Long time members of The Arora Report have a gain of 282%. The WMT buy zone will be revised upwards for newer members.
- The U.S. economy is 70% consumer based. For this reason, prudent investors pay attention to retail sales. The just released data shows that after a brief hiatus, the consumer is back on a spending spree. Here are the details:
- Retail sales came at 1.0% vs. 0.3% consensus and whisper numbers of 0.2%.
- Retail sales ex-auto came at 0.4% vs. 0.2% consensus.
- The foregoing data flies in the face of other recent data. The other recent data has been showing weakness.
- Weekly initial jobless claims came at 227K vs. 232K consensus. Initial 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.
- On August 12, we shared with you The Arora Report call,
In The Arora Report analysis, the market reaction to the news has changed. In November 2022, Powell triggered the stock market reaction function of bad news is good news and good news is bad news. This reaction function persisted until mid-July 2024. Starting in mid-July 2024, the market reaction function has changed – good news is good news and bad news is bad news. As a member of The Arora Report, you knew in advance that this change was coming. We have repeatedly written that the prior market reaction function was highly flawed as it counted on bad news leading to rate cuts but did not consider that bad news also negatively impacts earnings. Now, the stock market is understanding the reality and has stopped ignoring the fact that bad news leads to bad earnings.
- The early market reaction to the good news from Walmart, retail sales, and jobless claims is very positive. This shows that so far The Arora Report call on market reaction function is spot on.
- What is the connection between aggressive buying in NVDA stock and the three new pieces of data above? The connection is the stronger economy combined with upcoming Fed cuts will drive PEs of AI stocks higher.
- The stock market always has crosscurrents. The data today is producing a fly in the ointment. The fly is that bonds are falling. This goes against the prevailing wisdom that bonds should be rising. Falling bonds is a negative for the stock market as it negatively impacts PE ratios.
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), NVDA, Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
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
Gold is being sold on rising interest rates after the data.
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 market is awaiting Iran’s response to Israel.
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 range bound.
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 $2490, silver futures are at $28.27, and oil futures are at $77.61.
S&P 500 futures are trading at 5528 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 416 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.
To take a free 30-day trial to paid services to gain access to more opportunities, please click here.
This post was just published on ZYX Buy Change Alert.
Markets can generate substantial wealth for knowledgeable investors. NOW YOU TOO CAN ALSO SPECTACULARLY SUCCEED AT MEETING YOUR GOALS WITH THE HELP OF THE ARORA REPORT. You are receiving less than 2% of the content from our paid services. …TO RECEIVE REMAINING 98% INCLUDING MANY ATTRACTIVE INVESTMENT OPPORTUNITIES, TAKE A FREE
TRIAL TO PAID SERVICES.
Please click here to take advantage of a FREE 30 day trial.
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.
