By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Nvidia May Be Next
Please click here for a chart of Taiwan Semiconductor Manufacturing Company stock (TSM).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of TSM stock is being used to illustrate the point.
- TSM is the largest semiconductor foundry in the world for advanced semiconductors. TSM manufactures chips for the likes of Nvidia (NVDA) and Apple (AAPL).
- The chart shows the support/resistance zone. This was previously the resistance zone.
- The chart shows that TSM has broken out in the early trade after reporting earnings. If the breakout sustains, this zone will become the support zone.
- RSI on the chart shows that there is room for the stock to run.
- Going into earnings, whisper numbers for TSM were creeping up above the consensus. Whisper numbers are numbers that analysts privately provide to their best clients. Whisper numbers are often different from the numbers the same analysts publish for public consumption. Stocks move based on the difference between whisper numbers and the reported numbers. TSM reported numbers better than the whisper numbers.
- Here is the most important question for prudent investors: How do you reconcile ASML (ASML) earnings (please see yesterday’s Morning Capsule) with TSM earnings? The answer is that TSM is more leveraged to AI, including Nvidia. This is the reason that The Arora Report gave a signal for a trade around position on NVDA stock earlier for aggressive investors. The trade around position is separate and distinct from the core NVDA position that is long from $12.55.
- The consumer is splurging again after a brief pullback. Prudent investors pay attention to consumers because the U.S. economy is 70% consumer based. Here is the latest retail sales data.
- Headline retail sales came at 0.4% vs.-0.2% consensus.
- Retail sales ex-auto came at 0.5% vs. 0.1% consensus.
- Initial jobless claims came at 241K vs. 270K consensus.
- Bonds are falling on the strong economic data.
- The retail sales data and the jobless claims data adds to the other data that shows the Fed cut spiked the punch with the 50 bps interest rate cut.
- Before the Fed rate cut, we shared with you in The Arora Report analysis that the data justified a 25 bps rate cut. The latest data shows that The Arora Report call was spot on, just like almost all Arora calls related to the Fed and the economy over the last 17 years.
- The Fed’s job is to maintain stability and not to spike the punch. As a matter of fact, the Fed’s job is to take the punch bowl away.
- In The Arora Report analysis, the reason that the stock market has not yet experienced the usual seasonal downturn in September and October is that the Fed spiked the punch in going against the hard data.
- In earnings of note, Elevance Health (ELV), one of the largest licensee of Blue Cross Blue Shield, reported worse than expected earnings. The stock is down about 15% as of this writing in the premarket. As a reminder, previously, the nation’s largest healthcare insurer United Health (UNH) also reported rising medical costs.
- 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), Nvidia (NVDA), Microsoft (MSFT), Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are neutral in Alphabet (GOOG).
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.
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 *** stocks 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 draw of 1.58M barrels vs. a consensus of a build of 3.2M barrels.
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 buying on optimism that Trump will be elected.
Markets
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.
S&P 500 futures are trading at 5924 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 99 points.
Gold futures are at $2693, silver futures are at $31.75, and oil futures are at $70.41.
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.
