By Nigam Arora
To gain an edge, this is what you need to know today.
A Powerful Edge
Please click here for a chart of leveraged semiconductor ETF (SOXL).
Note the following:
- Semiconductors reflect the AI trade, and SOXL is the momo crowd’s favorite.
- The chart shows that support at the upper band of zone 4 (support) has held so far. This is a positive.
- The chart shows that yesterday SOXL staged a major rally of 22.25%. This is a positive.
- The chart shows that the volume was heavy but nowhere near the very heavy volume during the decline. The interpretation of this is positive.
- RSI shown on the chart has the following implications:
- The chart shows the positive RSI divergence has ended. Positive divergence was due to RSI going higher when SOXL was going lower. Positive RSI divergence set up the conditions for yesterday’s 22.25% rally.
- The chart shows that now the condition has flipped. Now, there is a negative RSI divergence. In plain English this means that as SOXL staged a huge rally, RSI went down. This indicates that the rally may not be durable.
- RSI shows SOXL is now oversold. This means if there is any good news on semiconductors, semiconductors have the potential to rally.
- The sum total of the foregoing is that the semiconductor rally may not be durable unless there is another piece of good news or there are significant quick changes in money flows, positioning, or sentiment. In The Arora Report analysis, investors should prepare for high volatility.
- Prudent investors can learn from yesterday how to gain a big edge in their investing and trading. Yesterday, there was an earthquake in the form of a scandal involving Jensen Huang, CEO of the largest semiconductor company Nvidia (NVDA) and a suspected Chinese spy. NVDA stock fell. NVDA carries a heavy weighting in semiconductor indexes. Due to the Nvidia scandal, the wisdom on Wall Street was that SOXL would see a significant drop. However, The Arora Report was positioned for a rally having initiated new semiconductor positions in Intel (INTC), Advanced Micro Devices (AMD), semiconductor ETF (SMH), and Marvell (MRVL). The Arora Report was positioned positive due to the edge from analysis of positioning, sentiment, and money flows.
- Coming into yesterday morning, here was the set up in semiconductors:
- Positioning had turned negative from being very positive not that long ago. At critical junctions, negative positioning is a positive indicator.
- Sentiment was extremely negative. We have previously shared with you that at the extremes, sentiment is a contrary indicator. Extreme negative sentiment is a buy signal. It is worth a reminder that sentiment is not a precise timing indicator.
- Momo crowd money flows were negative. At critical junctions, negative momo crowd money flows is a positive indicator.
- Smart money flows were positive. After a drop, positive smart money flows are a positive indicator.
- For those who want to gain the big edge that was on display yesterday, there are several podcasts in Arora Ambassador Club on positioning, sentiment, money flows, and sequence of events. Especially valuable is the new podcast published yesterday titled “THE NEXT PHASE OF AI PART 8 – TURN TREACHEROUS AI INTO YOUR ADVANTAGE.”
- For the very short term, here is the fly in the ointment for semiconductors in the early trade this morning:
- Positioning has quickly flipped positive.
- Sentiment has quickly flipped positive.
- Momo crowd money flows are positive.
- Smart money flows are neutral. Such a quick flip is rare. If the foregoing flips had not happened, there would have been high confidence in the semiconductor rally. However, due to the flip, now semiconductors can go in either direction in the short term. It will likely come down to one large fund making a big trade. Wall Street machines will jump on in the same direction of the trade and the momo crowd will follow. The latest podcast in Arora Ambassador Club explains this in detail.
- The flip is part of the decision behind The Arora Report signal earlier this morning to take partial profits on the AMD trade around position.
- Neocloud CoreWeave (CRWV) will report earnings after the close. CoreWeave is important to the entire AI trade for the following reasons:
- CoreWeave is the epicenter of the recent drop in the AI trade.
- CoreWeave is backed by Nvidia.
- CoreWeave has heavily borrowed to build data centers.
- CoreWeave bonds have dramatically dropped.
- CoreWeave stock has dramatically dropped.
- There is large short interest in CoreWeave stock. Paradoxically, large short interest can trigger a short squeeze.
- Consumer Price Index (CPI) came hotter. Here are the details:
- Headline CPI came at 0.4% vs. 0.3% consensus.
- Core CPI came at 0.3% vs. 0.2% consensus.
- In The Arora Report analysis, investors should not become too concerned about hotter than expected CPI for the following reasons:
- The data is for October when oil prices were high.
- In November, so far, oil prices have dramatically fallen.
- Oil prices have a major impact on CPI.
- Energy is directly part of Headline CPI.
- Energy is not directly part of Core CPI, but energy impacts a number of items in Core CPI.
- Oil prices continue to fall as President Trump continues to show a conciliatory attitude toward Iran.
- 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
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Apple (AAPL).
In the early trade, money flows are neutral in Alphabet (GOOG) and Meta (META).
In the early trade, money flows are negative in Amazon (AMZN), Microsoft (MSFT), Nvidia (NVDA), 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. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). 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 range bound.
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 7521 as of this writing. S&P 500 futures resistance levels are 7541, 7626, and 7733 : support levels are 7318, 7194, and 7032.
DJIA futures are down 40 points.
Gold futures are at $4068, silver futures are at $51.76, and oil futures are at $84.45.
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.
