HOTTER PRODUCER PRICE INDEX, THE POWER OF ‘PICKS AND SHOVELS’ PLAY

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By Nigam Arora & Dr. Natasha Arora

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

Hotter Inflation

Please click here for a chart of Applied Materials stock (AMAT).

Note the following:

  • The Morning Capsule is about the big picture, not an individual stock.  The chart of AMAT stock is being used to illustrate the point.
  • As we have been sharing with you, Applied Materials is the best “picks and shovels” play in artificial intelligence.
  • Artificial intelligence needs more sophisticated chips.  To manufacture more sophisticated chips, companies such as Taiwan Semiconductor (TSM) and Intel (INTC) are buying more sophisticated equipment to manufacture the chips.  Applied Materials is a big beneficiary.
  • The chart shows the big jump in AMAT stock on earnings.
  • RSI on the chart shows that AMAT is overbought.
  • The power of the demand for AI is reflected in the following earnings details from AMAT:
    • The company reported adjusted earnings per share of $2.13 vs. $1.90 consensus.
    • The company reported revenue of $6.71B vs. $6.48B consensus.
    • The company is forecasting revenue for the current quarter with a midpoint of $6.5B vs. $6.34B consensus.
  • The strength in AMAT is pushing tech stocks higher, especially AI stocks.
  • AMAT is in the ZYX Buy Core Model Portfolio.  The power of buy zones and the Arora methodology of stock selection is evident from the fact that the stock was bought at an average price of $16.  As of this writing, the stock is trading at $209.94.  This represents a gain of 1212%.
  • The rise in AMAT stock shows that “picks and shovels” is a great strategy.  It is a good idea for investors to understand this strategy deeply.  The best way to understand the “picks and shovels” strategy is to listen to podcasts in Arora Ambassador Club.  Several podcasts delve into this strategy.
  • Producer Price Index (PPI) came hotter than expected, just as the Consumer Price Index (CPI) did on Tuesday.  Here are the details:
    • Headline PPI came at 0.3% vs. 0.1% consensus.
    • Core PPI came at 0.5% vs. 0.1% consensus.
  • Atlanta Fed President Bostic indicated that the Fed is not in a rush to cut interest rates due the strong economy and strong labor market.  Bostic also warned that “victory is not clearly at hand.”
  • University of Michigan consumer confidence will be released at 10am ET.  The data may be market moving.
  • 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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Japan

Japan’s Nikkei 225 hit a new 34 year high and is approaching a new all time high.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Nvidia (NVDA) and Tesla (TSLA).

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

In the early trade, money flows are negative in Apple (AAPL), Amazon (AMZN), and Meta (META).

In the early trade, money flows are mixed in S&P 500 ETF (SPY) and positive in 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 *** stocks 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) is range bound.

Markets

Our very, very short-term early stock market indicator is ***.  Remember today is a Friday, and short squeezes tend to occur on Fridays. 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 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.

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Gold futures are at $2012, silver futures are at $23.00, and oil futures are at $77.39.

S&P 500 futures are trading at 5034 as of this writing.  S&P 500 futures resistance levels are 5210, 5400, and 5500 : support levels are 5020, 4918, and 4852.

DJIA futures are down 134 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.

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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

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

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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