By Nigam Arora
To gain an edge, this is what you need to know today.
Raise Cash And Hedges
As per the adaptive ZYX Asset Allocation Model with inputs in ten categories, cash is being raised by *** (To see the locked content, please take a 30 day free trial) and short term hedges are being raised by ***. See details in the “Arora Protection Band And What To Do Now” section below.
Hotter PPI
Please click here for a chart of Block stock (XYZ).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of XYZ stock is being used to illustrate the point.
- The chart shows a 20% move up in XYZ stock. Block is the maker of the popular Cash App. The move up is the result of Jack Dorsey, founder of Block, announcing that XYZ will implement 40% job cuts. Dorsey was also a founder of Twitter. When Elon Musk bought Twitter, Musk made massive job cuts. At that time, Musk’s critics were aghast and claimed the job cuts were so drastic that Twitter would fall apart. When Twitter not only continued to function but also started adding new features with a much smaller staff, other tech companies noticed. After Musk’s move, a large wave of layoffs among tech companies followed.
- It is conceivable that Dorsey’s move may have an impact similar to Musk’s move. More large scale job cuts may follow.
- The difference between the job cuts at Twitter and those at Block is that Dorsey is reorganizing the company to take full advantage of AI.
- In The Arora Report analysis, this time layoffs are not only coming to tech companies but they are coming to corporate America in general. In The Arora Report analysis, corporations are going to look at how Dorsey is reorganizing Block, and they are going to start reorganizing to fully take advantage of AI.
- Further, in The Arora Report analysis, there is going to be a wide dispersion in how it impacts different companies in the stock market.
- Many stocks will experience major up moves because their labor expenses are going to go down.
- Stocks of many companies, such as software companies that sell per seat, are going to be adversely impacted. Examples are Salesforce (CRM), Workday (WDAY), Figma (FIG), and Monday.com (MNDY). The Arora Report has published a list of 18 stocks with nine likely winners and nine likely losers in software. The list can be accessed from the main menu in ZYX Buy, ZYX Allocation, and ZYX Short. For those wanting next level information, listen to the podcast in Arora Ambassador Club titled “OPPORTUNITIES FROM AI DISRUPTING SOFTWARE – PART 1.”
- As people lose jobs, many consumer discretionary stocks will lose as well as companies catering to white collar workers such as American Express (AXP).
- Investors should expect a big societal change and high volatility in the stock market. It is worth a reminder that volatility in the stock market is your friend when you have knowledge, expert guidance, and access to numerous edges like the proprietary Arora Protection Band.
- On an optimistic note, OpenAI, the maker of ChatGPT, has raised $110B at a valuation of $730B.
- Producer Price Index (PPI) came hotter than expected. Here are the details:
- Headline PPI came at 0.5% vs. 0.3% consensus.
- Core PPI came at 0.8% vs. 0.3% consensus.
- As an actionable item, the sum total of the foregoing is in the Arora Protection Band, which strikes the optimal 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.
Iran
The risk of a U.S. attack on Iran is rising. Oil, gold, and silver are ripping on Iran fears.
India
India’s Q3 GDP came at 7.8% year-over-year vs. 7.2% consensus. Among major economies, India continues to grow quickly and presents one of the best opportunities for long term investors. ZYX Emerging has continuously covered India for nearly two decades.
Investing is never simple. Now, there is a new fly in the ointment. India’s economy has a major component of IT and business process outsourcing services. Expect AI to decimate such services and hurt India’s economy in the process. There is a short position on Indian IT company Infosys (INFY) in ZYX Short.
Pakistan and Afghanistan
An open war has broken out between Pakistan and Afghanistan. Neither country is economically material in the global context, but the war creates geopolitical instability that, in turn, impacts the stock market.
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 negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
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 *** stocks in the early trade. Smart money is *** stocks 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 buying gold in the early trade and is especially aggressive in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). Smart money is inactive 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
Interest rates are ticking down, and bonds are ticking up.
The dollar is range bound.
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 6862 as of this writing. S&P 500 futures resistance levels are 7000, 7200, and 7500 : support levels are 6780, 6500, and 6256.
DJIA futures are down 531 points.
Gold futures are at $5235, silver futures are at $92.44, and oil futures are at $67.51.
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.
