By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
AI Race
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 NVDA previously reached the low band of the micro resistance zone.
- The chart shows in the early trade, NVDA has fallen below the resistance zone, which was previously a support zone.
- RSI on the chart shows that NVDA is not oversold even with the drop this morning, indicating there is more room to the downside.
- NVDA stock is falling in the early trade because of the publicity this weekend around an open source artificial intelligence large language model out of China called DeepSeek. There are reports that the cost of training DeepSeek was only $6M and used only 2,000 Nvidia chips. This is substantially cheaper compared to the tens of thousands of Nvidia chips and hundreds of millions of dollars U.S. companies have spent to build artificial intelligence large language models like OpenAI’s ChatGPT. While DeepSeek is creating concerns about cheaper competition, it is not clear that the capabilities are the same.
- Prudent investors should note that DeepSeek’s flagship model V3 was released in December. On January 20, a specialized model R1 was released by DeepSeek. The market was totally ignoring DeepSeek until it gained publicity this weekend. Previously, the market was ignoring DeepSeek due to the extreme positive sentiment. During periods of extreme positive sentiment, the stock market latches on to bullish news and ignores bearish news.
- Investors were aggressively selling U.S. AI stocks and buying Chinese AI stocks in the early trade.
- In The Arora Report analysis, prudent investors should be somewhat skeptical of DeepSeek claims. Remember the following:
- DeepSeek is coming out of China.
- DeepSeek seems to be heavily censored by the Chinese government.
- Some are claiming that DeekSeek is connected to the Chinese Communist Party.
- It is possible that DeepSeek may have used more computing power than it seems on the surface.
- We have been sharing with you since 2022 that a fortune is to be made in AI all the way to 2030, but it will not be in a straight line. At times, it will be treacherous. What is happening this morning is an example of the treacherousness. You will need expert guidance. We have also been writing that money is to be made from both the long and short sides. This morning’s selloff illustrates the wisdom of making money from both the long and short sides.
- Trump hopium is beginning to meet reality. Until Friday, investors were focusing only on the positive side of Trump’s agenda and totally ignoring the negative side of Trump’s agenda. Over the weekend, when Columbia refused to let a U.S. military plane reportedly carrying immigrants land, Trump imposed 25% tariffs on Columbian goods. Columbia quickly backed down and agreed to everything Trump wanted. This incident woke up some investors, while most investors are still asleep and unaware of the negative side of Trump’s agenda.
- In The Arora Report analysis, prudent investors should pay attention that privately Trump advisors are urging Trump to impose 25% tariffs on Mexico and Canada as early as this Saturday.
- Earnings ahead this week include Apple (AAPL), Microsoft (MSFT), Tesla (TSLA), Intel (INTC), Meta (META), Exxon (XOM), and Southwest Airlines (LUV).
- The Fed is also meeting this week.
- In the early trade, as the momo crowd panics, institutional money is moving out of stocks and into the safety of Treasuries.
- 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 neutral in Apple (AAPL).
In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), Nvidia (NVDA), Microsoft (MSFT), 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.
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) is being sold along with tech stocks.
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 6005 as of this writing. S&P 500 futures resistance levels are 6131, 6256, and 6500: support levels are 5926, 5748, and 5622.
DJIA futures are down 323 points.
Gold futures are at $2761, silver futures are at $30.88, and oil futures are at $74.20.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary protection band from The Arora Report is very popular. The 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.
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.
