By Nigam Arora
To gain an edge, this is what you need to know today.
Quantum Breakthrough
Please click here for a chart of Lithium Americas stock (LAC).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of LAC stock is being used to illustrate the point.
- The chart shows extremely aggressive momo crowd buying in LAC stock.
- The buying shown on the chart is in part driven by a short squeeze. The trigger for the buying is the U.S. government’s intention to seek up to a 10% stake in Lithium Americas. Lithium Americas is a Canadian lithium miner and a majority owner of Thacker Pass mine in Nevada. General Motors (GM) owns a minority stake in the mine.
- Under the Biden administration the Department of Energy had agreed to give Lithium Americas a $2.2B loan. It is likely that Lithium Americas will not get any new money but will end up diluting its existing shareholders as the government gets equity as a gift. The momo crowd is oblivious to President Trump’s statement that nothing is free. In reality, this is a negative development for LAC shareholders. The momo crowd is buying LAC stock as pumpers promote a highly flawed comparison to MP Materials (MP). MP Materials is a rare earth mineral miner. MP stock ran up when the Department of Defense took 15% equity. The big difference is in the case of MP Materials, the Department of Defense is also buying rare earth minerals from MP Materials at above market prices. In the case of Lithium Americas, the government does not plan on buying any lithium from the company. Further, the supply of lithium in the world is significantly higher than current demand. In contrast, China has a stranglehold on rare earth minerals and has used this to gain a formidable advantage in trade talks with the U.S.
- From a big picture point of view, the move up in LAC is a sign of extremely positive sentiment and high liquidity. The insanity being seen right now in the momo crowd’s buying of LAC stock is typically seen in periods of extreme positive sentiment.
- As we have shared with you before, extreme sentiment is a contrary indicator. In plain English, this means sell. However, several nuances are worth a reminder:
- Sentiment is not a precise timing indicator.
- Sentiment can stay in the extreme positive zone for a long time.
- When sentiment is in the extreme positive zone, it does not mean to sell wholesale. It means the following:
- Be highly cautious in starting new strategic positions.
- Most new positions should be tactical.
- It is important to have strict risk controls such as appropriate position sizes and stop losses.
- There is merit to trimming or taking partial profits.
- As an actionable item, when sentiment is in the extreme positive zone, most investors should consider being in the upper half of the Arora Protection Band.
- We have been sharing with you extremely aggressive momo crowd buying in nuclear smart modular reactor stock Oklo (OKLO) as a result of extremely positive overall sentiment in the market. Such spikes are common when the sentiment is extremely positive. You may be asking what insiders are doing – insiders are selling, taking advantage of momo crowd buying. Smart money is also selling OKLO stock. It is also common behavior as smart money takes advantage of the momo crowd. As of this writing, OKLO stock has fallen from a high of $144.45 yesterday to $110.83 as of this writing in the premarket. Unless the stock rebounds, the momo crowd will be left holding the bag as is often the case when it is all said and done.
- Prudent investors should note that just like OKLO, there is significant insider selling in most stocks that the momo crowd is running up.
- We have been sharing with you that there have been many pull forwards in different ways in this stock market. This morning, used car dealer CarMax (KMX) is illustrating the dangers when investors do not understand pull forward. As of this writing, KMX stock is falling about 18% as the company admits that previously its sales were pulled forward as consumers bought ahead of tariffs.
- There is more excitement about Intel (INTC) as the company seeks investment from Apple (AAPL).
- HSBC (HSBC) is Europe’s largest lender. In a first, HSBC is reporting a quantum breakthrough in bond trading using quantum computing. In a test using quantum computing, the bank saw a 34% increase in correctly predicting the probability of a trade fill at the quoted price compared with present day techniques. HSBC used a quantum computer from International Business Machines (IBM). IBM stock is jumping. Other quantum computing stocks such as IonQ (IONQ), Rigetti (RGTI), Quantum Computing (QUBT), D-Wave Quantum (QBTS) continue to levitate but are not significantly rallying as of this writing because they are very overbought and smart money is selling, taking advantage of the spikes caused by extremely aggressive momo crowd buying.
- Just released GDP data shows the economy is strong. Here are the details:
- Q2 GDP Third Estimate came at 3.8% vs. 3.3% consensus.
- GDP Deflator Third Estimate came at 2.1% vs. 2.0% consensus.
- Durable orders data is also strong.
- Durable orders came in at 2.9% vs -0.5% consensus.
- Durable orders ex-transportation came at 0.4% vs -0.1% consensus.
- Initial jobless claims came at 218K vs. 238K consensus. This data is also very strong. Initial jobless claims is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories. In plain English, adaptiveness means that the model changes itself with market conditions. Please click here to see how this is achieved. One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model. Most models on Wall Street are static. They work for a while and then stop working when market conditions change.
- The strong economic data is upsetting momo gurus’ narrative they use to persuade the momo crowd to aggressively buy stocks. Momo gurus’ narrative has been that the economy is weak and that will persuade the Fed to aggressively cut interest rates. The fact that momo gurus are wrong again is nothing new. It is not a problem for momo gurus as they are good at being chameleons. Expect momo gurus to come up with a new narrative to persuade the momo crowd to buy stocks.
- The Fed’s favorite inflation gauge, PCE, will be released tomorrow at 8:30am ET.
- 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 neutral in Apple (AAPL) and Amazon (AMZN).
In the early trade, money flows are negative in Alphabet (GOOG), Nvidia (NVDA), Microsoft (MSFT), Meta (META), 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) 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
The momo crowd is *** in oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is seeing selling
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 6656 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 down 136 points.
Gold futures are at $3766, silver futures are at $44.78, and oil futures are at $64.70.
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.
