By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
AI Exuberance Expands
Please click here for a chart of Reddit stock (RDDT).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of RDDT stock is being used to illustrate the point.
- Reddit is a social media company best known for the meme crowd running up meme stocks such as GameStop (GME) and AMC Entertainment (AMC). Reddit is also home to the YOLO (you only live once) crowd.
- Reddit came public at a price of $34 per share, the high end of the range. As a full disclosure, RDDT is in The Arora Report portfolio. The position is nicely profitable and partial profits have been taken.
- The chart shows that options started trading on RDDT stock yesterday.
- The chart shows that RDDT stock took off, rising 30% to $59.80.
- The chart shows that RDDT stock kept running yesterday after hours and has continued to run in the premarket today, up another 13.7%.
- Reddit is a 19 year old company that is unprofitable and cash flow negative.
- The narrative that is taking hold is that AI stocks such as Nvidia (NVDA) have already run up. Now, investors need to find AI adjacent stocks. The meme and momo crowds have chosen RDDT.
- The story is that RDDT data is valuable as it can be used to train large language models. Bulls cite a $60M deal with Google. The deal with Google is already under regulatory scrutiny.
- Take a moment to think about this; if you were a stock market investor and you went to an AI chatbot for answers, would you want answers based on the thinking of the meme crowd and the YOLO crowd? Most of you would say “no.” The absurdity of what is happening, as illustrated by the move in RDDT stock and many others, is primarily the result of two factors:
- Extremely positive sentiment
- Very easy financial conditions
- Historically, when financial conditions are this easy, the Fed steps in to put on the brakes. However, the Fed appears to be a lost cause, at least for now. It appears that instead of staying true to its mandate of price stability and maximum employment, in reality, the Fed is embarking on over goosing the economy and promoting speculation. The Arora Report is apolitical. Our sole job is to help investors. Some conservatives are claiming that the purpose of the Fed over goosing the economy is to re-elect Biden. Trump has already said that he will not reappoint Powell.
- In The Arora Report analysis, there is a high probability that the data will show the Fed the error of over goosing the economy, and the Fed will go back to its function of applying the brakes to maintain price stability.
- Durable good orders are strong. Here are the details:
- Durable goods came at 1.4% vs. 1.3% consensus.
- Durable good ex-transportation came at 0.5% vs. 0.4% consensus.
- Consumer confidence will be released at 10am ET. This may be market moving.
- $67B 5-year Treasury auction is ahead. The auction is expected to be good. However, in The Arora Report analysis, prudent investors need to be concerned about larger and larger sizes of Treasury auctions as the U.S. budget deficit balloons. If a Treasury auction is bad, or even worse fails, it can lead to a 30% – 50% retrenchment in the stock market. This is a reason to pay attention to the protection band.
- 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 NVDA, Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).
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.
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 over $70,000 as the pump continues about 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 and bonds are range bound.
The dollar is 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 $2187, silver futures are at $24.89, and oil futures are at $82.03.
S&P 500 futures are trading at 5289 as of this writing. S&P 500 futures resistance levels are 5400, and 5500: support levels are 5256, 5210, and 5020.
DJIA futures are up 46 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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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.
