SUPER MICRO FOLLY, STOCK MARKET DIRECTION DEPENDS ON WHICH POWELL SHOWS UP – OBJECTIVE OR POLITICAL

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By Nigam Arora & Dr. Natasha Arora

To gain an edge, this is what you need to know today.

Making A Fortune In Artificial Intelligence

Please click here for a chart of Super Micro Computer stock (SMCI).

Note the following:

  • The Morning Capsule is about the big picture, not an individual stock. The chart of SMCI stock is being used to illustrate the point.
  • Super Micro has been the most favorite artificial intelligence stock of the momo crowd.  The chart shows the big drop in the stock on earnings released after the market closed.
  • The chart shows a 40.5% drop since the high in March.
  • RSI shown on the chart foretold what was to come.
  • The momo crowd, including momo gurus, that ran up the stock did not really understand the server business.
  • SMCI presents an important learning moment for prudent investors.  These are four important points here:
    • What you do not buy is as important as what you buy.  
    • A little knowledge is a dangerous thing.  
    • The momo crowd’s history is that they make money because they run up stocks with their own buying.  Subsequently, the momo crowd loses money when smart money sells into the strength.  Often, the momo crowd loses more money than they make, resulting in a net loss.   
    • Follow smart money for investments.  Selectively follow the momo crowd for very short term trades when there is a Signal or Signal Limited.  
  • As a member of The Arora Report, you already knew in advance what was to come.  On March 4, right near the top of SMCI stock, we wrote in the Morning Capsule:
  • SMCI has become a favorite of the momo crowd.  The momo crowd incorrectly thinks SMCI has the same potential as Nvidia (NVDA).  Investors need to keep in mind the following:

    • SMCI moves a lot more than NVDA.  SMCI is so volatile because of the small float.

    • SMCI is an assembler of servers for artificial intelligence.  It uses components from NVDA, Micron (MU), and Marvell (MRVL).

    • NVDA has a large moat to protect it that includes IP for its GPUs.  SMCI has no moat and the barrier to entry for competitors is low.

    • SMCI sales are to hyperscalers like Microsoft (MSFT), Amazon (AMZN), and Google (GOOG).  The reason SMCI sales are booming is that they have availability of NVDA chips.  As chips become more available to competitors, SMCI will not be able to sustain its sales growth rate.

    • The momo crowd is buying SMCI due to lack of knowledge.  However, there are many investors who understand and have the knowledge of SMCI’s business.  Many such investors are short selling SMCI.  For the time being, short sellers are being overwhelmed by the YOLO crowd.

    • Taking all of the above into consideration with the quantitative analysis screen of the ZYX Change Method, in an optimistic case, the fair value of SMCI stock is $442 – $486.

  • You may recall that The Arora Report was the first one to identify that artificial intelligence was real in 2022.  At that time, momo gurus were selling AI stocks, providing an opportunity for members of The Arora Report to buy AI stocks near the lows resulting in big gains.  For example, members of The Arora Report bought Nvidia stock (NVDA) at an average of $125.51, just before the run up started.  As a reference, NVDA stock is trading at $850.58 as of this writing in the premarket.
  • A fortune is to be made in AI between now and 2030.  SMCI shows that at times it will be treacherous.  You need expert guidance, which we provide in the Real Time Feeds.  Equally important is building your knowledge of investments in AI.  The easiest way is to listen to the podcasts in Arora Ambassador Club.  To get on the waitlist to join Arora Ambassador Club, please click here to fill out the form.
  • FOMC will release its decision at 2pm ET today.  FOMC is expected to keep interest rates unchanged.  The key event is Powell’s conference.  The data shows that professional traders are expecting higher volatility during Powell’s conference than at any other point over the last year. 
  • In The Arora Report analysis, the near term direction of the stock market will come down to if objective Powell shows up or if political Powell shows up.  
    • If objective Powell shows up, expect the stock market to go down.   The reason is that the stock market is still levitating on hopium and not paying attention to the data.  
    • If political Powell shows up, expect a rip roaring rally. 
  • We previously shared with you that prudent investors should pay attention to the Treasury refunding plan.
    • The Treasury plans to borrow $243B in the April to June quarter vs. $202B estimate.
    • The Treasury has just released the composition of the borrowing.
    • In The Arora Report analysis, the composition is more important than the increased amount of borrowing.  Last time, the Treasury manipulated the borrowing to make stock and bond markets run higher.  We will be carefully analyzing the just released new data.
  • ADP is the largest private payroll processor in the country.  It uses its data to give a glimpse of the jobs picture in advance of the official jobs report that will be released on Friday at 8:30am ET.  ADP employment change came at 192K vs. 175K consensus.  This indicates that the jobs picture is staying very strong.  In The Arora Report analysis, the strength is at the low end while the job picture remains weak in IT and finance.
  • 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.
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Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon (AMZN), Alphabet (GOOG), and Microsoft (MSFT).

In the early trade, money flows are neutral in Meta (META).

In the early trade, money flows are negative in Apple (AAPL), 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.

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) has fallen below $60,000 on momo crowd selling.  Recent momo crowd bitcoin buyers who fell prey to whales’ propaganda of buying on bitcoin halving and bought bitcoin above $70,000 are panicking and selling.  Of course, if you listened to the podcast on bitcoin halving, you knew in advance that this was a high probability outcome.

Markets

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.

Interest rates are ticking down, and bonds are ticking up.

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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.

Gold futures are at $2307, silver futures are at $26.62, and oil futures are at $80.57.

S&P 500 futures are trading at 5053 as of this writing.  S&P 500 futures resistance levels are 5210, 5256, and 5400: support levels are 5020, 4918, and 4852.

DJIA futures are down 25 points.

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.

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.

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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 seven 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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This post was just published on ZYX Buy Change Alert.

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Picture of Nigam Arora

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.

Picture of Dr. Natasha Arora

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.

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A fortune is to be made from AI stocks.
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Making A Fortune
In Artificial Intelligence

Golden Age of Artificial Intelligence

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