By Nigam Arora
To gain an edge, this is what you need to know today.
Nvidia Earnings Ahead
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 is being used to illustrate the point.
- The chart shows that even after the large move up in the stock market after Fed Chair Powell hinted a rate cut is ahead, NVDA stock was not able to enter zone 1 (resistance).
- Volume on the chart shows that the move up on Friday was not on heavy volume. This indicates a lack of conviction ahead of earnings.
- The chart shows the trendline has been broken.
- RSI on the chart shows NVDA stock is no longer oversold.
- Nvidia reports earnings after the regular session close on Wednesday.
- Whisper numbers for Nvidia earnings are higher than the consensus numbers. Whisper numbers are the numbers analysts privately share with their best clients. Whisper numbers are often different from consensus numbers published by the same analysts for public consumption. Analysts typically provide whisper numbers only to their best clients, and not the public.
- In The Arora Report analysis, Nvidia earnings will be a test of the AI rally.
- Intel stock (INTC) has run up on the news that the U.S. government is taking about a 10% stake. The momo crowd is oblivious, but in The Arora Report analysis, this is negative for Intel. The reason is Intel was previously going to get a free infusion from prior government programs but now Intel is paying for it with about 10% of the company. This is a massive dilution for existing shareholders. The Arora Report has given a signal to take more partial profits on INTC stock, taking advantage of the strength.
- The stock market was euphoric on Friday after Powell hinted at a rate cut in September. As we shared with you right after Powell’s speech in an Interim Capsule:
In The Arora Report analysis, there is now a 95% rate cut in September. Only if the September inflation data is significantly worse than expectations, the rate cut may not happen.
- Prudent investors should note the following key points:
- There is no clarity if the September rate cut will be 25 bps or 50 bps.
- There is no clarity as to how many rate cuts there will be in this cycle.
- The stock market is discounting five rate cuts going into next year.
- Inflation continues to run higher than the Fed’s 2% target.
- In The Arora Report analysis, there were two important factors in Friday’s stock market rally that prudent investors should know:
- A short squeeze was responsible for about 20% of the move.
- Positioning was responsible for about 50% of the move. Positioning is an important Wall Street mechanic. Understanding positioning can give investors a big edge. For those who want next level information, listen to the podcast in Arora Ambassador Club.
- 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.
Money Flowing Into Chinese Stocks
Money continues to move into Chinese stocks as investors perceive that China has gotten the upper hand in trade negotiations with the U.S. Hong Kong’s Hang Seng reached its highest level in nearly four years, and China’s Shanghai Composite hit the highest level since 2015.
Mainland China ETF ASHR and Hong Kong ETF FXI are in ZYX Emerging Model Portfolio.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Alphabet (GOOG).
In the early trade, money flows are neutral in Nvidia (NVDA).
In the early trade, money flows are negative in Apple (AAPL), Amazon (AMZN), 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. 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
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 *** 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 selling.
It appears bitcoin whales took advantage of the euphoria among retail investors caused by Powell’s speech to sell bitcoin into the strength.
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 6465 as of this writing. S&P 500 futures resistance levels are 6500, 6700, and 7000: support levels are 6256, 6131, and 6017.
DJIA futures are down 137 points.
Gold futures are at $3410, silver futures are at $38.63, and oil futures are at $64.12.
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.
