By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
AI Chip Deal
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 the run up in NVDA stock since the lows in April.
- The chart shows the Arora buy signal and signal to take profits on hedges in April. NVDA is in the ZYX Buy Core Model Portfolio. NVDA stock is long from $12.55, representing a gain of 1352%.
- The chart shows RSI divergence. In plain English, this means that the internal momentum of NVDA stock is slowing. This is a negative.
- In an extraordinary deal, the White House is essentially partnering with Nvidia and Advanced Micro Devices (AMD) to help China with AI.
- The U.S. will receive 15% of sales of AI chips to China.
- In return, Nvidia will get an export license for H20 AI chips, and AMD will get an export license for MI308 AI chips.
- Exports of H20 and MI308 chips were previously stopped in April. The purpose was to slow down AI development in China.
- In The Arora Report analysis, this is a short term tactical win but of concern in the long term. China is the U.S.’s main strategic rival. China intends to replace the U.S. as the world’s superpower. In this rivalry, the AI capabilities of each country will play a major role:
- Shipping H20 and MI308 chips to China will enable China to progress faster.
- In theory, these chips are meant for inference, and not for training large language AI models. However, in The Arora Report analysis, China can use these chips to train large language models, albeit at a slower pace.
- President Trump campaigned that he was the right person to stop China from replacing the U.S. as the world’s superpower. In The Arora Report analysis, this is one of several moves over the last couple of months that are short term tactical wins for the U.S but raise concerns about the long term.
- The argument in favor of the deal is that if the U.S. were not to supply these chips to China, China will simply accelerate its own development. The counter argument is China is already moving at breakneck speed to increase its capabilities in AI at the fastest possible rate.
- It is important for investors to get ahead of the curve and prepare in advance for scenarios that are developing.
- There are significant long term implications of this move for investors. If there are more similar moves, The Arora Report will be making significant changes to long term investments. Stay tuned.
- Inflation data is ahead this week:
- Consumer Price Index (CPI) will be released tomorrow at 8:30am ET. The consensus for headline CPI is 0.2% and 0.3% for core CPI.
- Producer Price Index (PPI) will be released Thursday at 8:30am ET. The consensus for headline PPI is 0.2% and 0.2% for core PPI.
- In The Arora Report analysis, over the last few months, the cost of tariffs has not shown up in inflation data because suppliers abroad and U.S. businesses have been absorbing the cost. Sooner or later, some of this cost will show up in the inflation data. Will it be this week? Prudent investors should note that the stock market is not prepared for tariff costs showing up in inflation data.
- In The Arora Report analysis, at this time of extreme positive sentiment in the stock market, the market is still discounting a tariff rate of about only 10%. The reality is that so far, tariffs are averaging about 19%. Although oblivious now, sooner or later, the stock market will wake up to this new reality.
- Investors should keep in mind that September is not very far away. September tends to be a weak month. Stock market crashes tend to happen in October.
- Prudent investors should pay special attention to the Arora Protection Band.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the Arora Protection Band. The Arora 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), Meta (META), Microsoft (MSFT), and Tesla (TSLA).
In the early trade, money flows are negative in Apple (AAPL), Alphabet (GOOG), and Nvidia (NVDA).
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. Smart money is an important indicator but is only one of hundreds of indicators that go into determining the Arora Protection Band and signals. Please click here and here to understand how signals are generated.
Very Very Short-Term Indicator
The Arora Report’s proprietary 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
Gold is being sold on the prospect that the U.S. may not impose tariffs on 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
Oil is moving on speculation about the Trump Putin meeting that is set to take place on August 15 in Alaska. Russia is a major oil producer. The speculation is that President Trump will agree to removing sanctions on Russian oil.
The momo crowd is *** 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.
Markets
Interest rates are ticking down, and bonds are ticking up.
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 6424 as of this writing. S&P 500 futures resistance levels are 6500 and 6700 : support levels are 6256, 6131, and 6017.
DJIA futures are up 123 points.
Gold futures are at $3408, silver futures are at $37.83, and oil futures are at $64.26.
Arora Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary Arora Protection Band from The Arora Report is very popular. The Arora 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.
