By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
A New Opportunity In AI Ahead
Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).
Note the following:
- The chart shows that the stock market has pulled back after breaking below the trendline.
- The chart shows the support zone.
- The chart shows that in spite of the pullback, the stock market is still about 5% above the support zone.
- Powell had repeatedly made it clear that he was itching to cut interest rates. This is what initially triggered the stock market rally in 2023 and kept the stock market rally going in 2024.
- When inflation data from January came hotter than expected, the hot inflation data went against Powell, but Powell dismissed it as a one-off. The hot inflation data for February again went against Powell, but Powell again dismissed it as a one-off.
- The chart shows when CPI data was reported for January, February, and March.
- When the March inflation data came against Powell, prudent investors were eagerly awaiting how Powell would justify rate cuts after data went against him three months in a row. Powell has now shifted, saying that it will take longer to be confident about inflation. Powell acknowledged that progress on inflation has stalled. Powell now expects to hold interest rates at the current level longer than he previously expected.
- In the stock market, there was a short dip on Powell’s statement. The momo crowd aggressively bought the dip. This morning, the momo crowd continues to aggressively buy stocks.
- Due to the importance of Powell’s switch and the consequences of Powell’s error over the last several months to investors, we are preparing a new podcast to provide you with important deep insights that are not available anywhere else. The podcast will be available in Arora Ambassador Club.
- As the day and the week progresses, prudent investors need to stay alert to how the market reacts to earnings. Earnings season is in full swing. So far, earnings are mixed. Prudent investors should also stay in tune with what smart money does. As a reminder, when the momo crowd aggressively bought stocks after Iran attacked Israel, smart money took advantage of the strength generated by the momo crowd to trim stocks. Please see Monday’s Afternoon Capsule for details.
- Biden wants to increase tariffs on Chinese steel and aluminum. Biden is targeting steel workers’ votes in Pennsylvania in the upcoming election. Pennsylvania is an important swing state and could potentially be the deciding factor in the election.
- Artificial intelligence has dramatically increased the demand for advanced semiconductors. In turn, semiconductor manufacturers have been ramping up orders for advanced chip making equipment. For manufacturing advanced semiconductors, chip makers need extreme ultraviolet lithography machines from ASML. ASML is a Dutch company and is the most valuable European tech stock. New orders booked by ASML over the last quarter fell by 61% from the prior quarter as chip makers stopped buying as many advanced machines.
- In The Arora Report analysis, this is a temporary dip. ASML stock is down 4% in the early trade. If it dips further and enters the buy zone, there will be a signal in ZYX Buy.
- Another semiconductor manufacturing firm Applied Materials (AMAT) is our favorite chip equipment making stock to profit from artificial intelligence. AMAT is in the ZYX Buy Model Portfolio. AMAT is long from $16. It is trading at $205.85 as of this writing in the premarket. This represents a profit of 1187% for long time members of The Arora Report. Along the way, newer members have had numerous opportunities to buy AMAT as it dipped into new buy zones.
- Investing in semiconductor manufacturing equipment stocks is one of the best ways to profit from the artificial intelligence boom. This belongs in the ‘picks and shovels’ strategy. For those wanting deeper knowledge, there are several podcasts on this strategy in Arora Ambassador Club. The Arora Report recommends that investors also diversify by strategy. The Arora Report uses over 50 different strategies. The easiest way to diversify by strategies is to follow the Model Portfolios.
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are mixed 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
API crude inventories came at a build of 4.090M barrels.
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 trading in the $62,000 range ahead of bitcoin halving.
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 up and bonds are ticking down.
The dollar is slightly 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 $2402, silver futures are at $28.55, and oil futures are at $84.82.
S&P 500 futures are trading at 5110 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 up 91 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.
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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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.
