By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Stock Market Direction
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.
- The chart shows that after a strong rally NVDA stock entered the resistance zone.
- The rally was triggered by Jensen Huang’s comment that the demand for Blackwell was insane.
- The chart shows that NVDA was not able to penetrate the resistance zone.
- The chart shows when NVDA started backing off from the resistance zone, aggressive selling came in.
- The chart shows that NVDA is now below the bottom band of the resistance zone but still considerably above the mini support zone shown on the chart.
- RSI on the chart shows that NVDA stock had become extremely overbought. Overbought stocks tend to pullback. This is exactly what happened. The chart shows the pullback has relieved the extreme overbought condition.
- The chart shows that the volume on the pullback was not low. This indicates that investors should not dismiss this pullback.
- In addition to the technical reason for the pullback, there is a fundamental reason. The fundamental reason is earnings from Dutch semiconductor equipment company ASML (ASML). ASML has an almost monopoly on extreme ultraviolet lithography equipment needed for manufacturing Nvidia’s chips. ASML stock fell 16% on the heaviest volume in 10 years. The big disappointment in ASML earnings was that ASML is forecasting 2025 sales of 30B – 35B euros vs. consensus of 35.8B euros.
- In The Arora Report analysis, the reaction in NVDA stock to ASML’s forecast is an overreaction. ASML is seeing strong AI demand. The weakness is from other chip segments.
- It is important to note that the demand for Blackwell is so strong that Nvidia is fully booked for the next 12 months.
- To a large degree, what happens to NVDA next will determine the fate of tech stocks until big tech earnings come along. If NVDA stock breaks above the resistance zone, it will be positive not only for tech stocks but for the entire stock market.
- Most semiconductor stocks have been hit. Semiconductor bears are questioning the staying power of the semiconductor rally.
- Among earnings of note, Morgan Stanley (MS) reported earnings better than the consensus. MS earnings are important because MS has large investment banking, trading, and wealth management businesses. Previously Goldman Sachs (GS), JP Morgan (JPM), and Bank of America (BAC) also reported good earnings. This indicates that the fundamentals of the financial sector are strong. As most investors are focused on tech, prudent investors should have some diversification in the financial sector. JPM and BAC are in the ZYX Buy Core Model Portfolio. Bank ETF KBE is in the ZYX Allocation Core Model Portfolio.
- We have been sharing with you the rising yields on long bonds. Now, it is spilling into mortgage rates. Mortgage rates hit the highest since August. Mortgage refinancing demand fell 26% week-to-week. Refinancing is very sensitive to interest rates.
- Yesterday, we shared with you that Google (GOOG) was going nuclear to obtain power for AI data centers. Amazon (AMZN) is now signing an agreement with Dominion Energy (D) to explore developing a small modular reactor near North Anna nuclear station.
- 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.
U.K.
In the U.K., new data shows that inflation is running below 2% for the first time since 2021.
- CPI came at 0.0% month-over-month vs. 0.1% consensus.
- CPI came at 1.7% year-over-year vs. 1.9% consensus.
Historically, the U.K. has preceded the U.S. by several months. For this reason, it is important to pay attention to U.K. economic data.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Nvidia (NVDA) and Tesla (TSLA).
In the early trade, money flows are neutral in Amazon (AMZN) and Alphabet (GOOG).
In the early trade, money flows are negative in Apple (AAPL), Meta (META), and Microsoft (MSFT).
In the early trade, money flows are neutral 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.
Very Very Short-Term Indicator
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.
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
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) bulls are excited. Bitcoin gurus are proclaiming that this time bitcoin is going to breakout and rocket to $100K. Bitcoin is trading above $67K as of this writing.
Markets
Interest rates are ticking down, and bonds are ticking up.
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.
S&P 500 futures are trading at 5866 as of this writing. S&P 500 futures resistance levels are 5926 and 6017: support levels are 5748, 5622, and 5500.
DJIA futures are up 9 points.
Gold futures are at $2697, silver futures are at $32.09, and oil futures are at $70.71.
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.
