By Nigam Arora
To gain an edge, this is what you need to know today.
Remember 1996 Stock Market
Please click here for a chart of Micron stock (MU).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of MU stock is being used to illustrate the point.
- The chart shows yesterday’s price action in MU stock was on higher volume.
- Yesterday, we shared with you MU stock was overbought and overbought stocks are susceptible to a pullback.
- The chart shows MU stock is down after reporting excellent earnings. Earnings and projections were better than the consensus and whisper numbers.
- The chart shows MU stock has broken below the trendline.
- Immediately after the release of Micron earnings, the momo crowd bought MU stock extremely aggressively, running MU stock as high as $174.92.
- The chart shows that as of this writing MU stock has pulled back to $164.80, about $10 off from its after hours peak immediately after the earnings release.
- In The Arora Report analysis, the price action on the MU chart shows that the reason the stock fell even after reporting stellar earnings is that MU stock had pulled forward the good news.
- In The Arora Report analysis, prudent investors should be aware that almost all of the top performing stocks have pulled forward the potential future good news.
- The MU chart provides good context for Fed Chair Powell’s statement yesterday in which he warned that stocks appear to be ‘fairly highly valued’.
- Smart money sold after Fed Chair Powell’s warning. Can you guess what the momo crowd did when stocks dipped? You guessed right – the momo crowd aggressively bought the dip.
- In the Interim Capsule, The Arora Report call was:
Consider trimming some tactical positions, booking partial profits, and moving higher in the protection band based on personal preference and risk appetite. Consider holding strategic positions.
- To understand Fed Chair Powell’s warning, prudent investors need to remember December 5, 1996. On that day, then Fed Chairman Alan Greenspan made his famous ‘irrational exuberance’ speech. Greenspan said, “But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade?”
- To put it in the proper context, Nikkei 225 in Japan hit its all time high of 38,915.87 on December 29, 1989. Nikkei 225 closed at 20,943.90 on the day of Greenspan’s irrational exuberance speech, a 46.2% drop from its peak. Stocks in Japan continued to fall with Nikkei 225 reaching 7054.98 on March 10, 2009, 81.9% off its 1989 peak. Coincidently, only one day before, on March 9, 2009, when almost everyone on Wall Street was saying to sell stocks, The Arora Report gave the famous ‘back up the truck’ and buy stocks signal. At that time, it was a very bold call. Now we know that March 9, 2009 was the exact bottom in U.S. stocks, and an epic bull market followed. There is a nicely profitable position in Japan ETF EWJ in ZYX Allocation.
- Investors need to remember that after Greenspan’s warning, the momo crowd continued to aggressively buy stocks, inflating the dot com bubble, and finally the stock market crashed in 2000.
- In The Arora Report analysis, the probability is fairly high that history may repeat itself again. The best tool investors have to handle the situation is the Arora Protection Band.
- Yesterday we shared with you the breakthrough in quantum computing. This morning, aggressive buying in quantum computing stocks such as IonQ (IONQ), Rigetti (RGTI), Quantum Computing (QUBT), and D-Wave Quantum (QBTS) continues.
- We previously shared with you the extreme exuberance among investors for nuclear stocks. The extreme exuberance in nuclear stocks such as Oklo (OKLO), NuScale Power (SMR), NANO Nuclear Energy (NNE), and Cameco (CCJ) continues.
- 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), Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Meta (META), and Tesla (TSLA).
In the early trade, money flows are neutral in Alphabet (GOOG).
In the early trade, money flows are positive 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 *** in gold in the early trade. Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
API crude inventories came at a draw of 3.821M barrels vs. a prior draw of 3.420M barrels.
Oil is moving up on President Trump changing his stance on Ukraine.
The momo crowd is *** oil in the early trade. Smart money is *** oil 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 6728 as of this writing. S&P 500 futures resistance levels are 6780, 7000, and 7200 : support levels are 6500, 6256, and 6131.
DJIA futures are up 70 points.
Gold futures are at $3800, silver futures are at $44.40, 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.
