By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Speculative Sentiment
Please click here for a chart of Tesla stock (TSLA).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of TSLA stock is being used to illustrate the point.
- As we shared with you yesterday, speculative sentiment has been playing a big part in the stock market’s rise.
- The movement in TSLA stock plays a big role in speculative sentiment.
- The chart shows TSLA stock fell after earnings.
- The chart shows that the prior support zone has now become a resistance zone.
- Historically, when a stock rises on gamma squeeze, the rise often turns out to be temporary. So far, it appears that will be the case with TSLA stock. This illustrates why it is important for investors to understand market mechanics such as gamma squeeze. Wall Street professionals keep market mechanics close to the chest because of their high value. The easiest way to learn market mechanics is by listening to the podcasts in Arora Ambassador Club.
- Prior to TSLA earnings release, in yesterday’s Morning Capsule, we wrote:
Electric vehicle business continues to be weak and is likely to further weaken.
- The Arora Report call on electric vehicles has proven spot on. Tesla’s electric vehicle sales fell 7%.
- Of special note is that Tesla plans to spend $10B this year on development of humanoid robots and robotaxis.
- Elon Musk tried his best to help those fighting on the side of humanoid robots and robotaxis. He said, “If you believe Tesla will solve autonomy, you should buy Tesla stock, and all these other questions are in the noise.”
- A battle took place between investors who are focused on electric vehicles and investors who are focused on future prospects of humanoid robots and robotaxis. At least temporarily in the early trade, electric vehicles have won.
- Speculative sentiment is taking a hit in the early trade as Tesla stock falls. Since October 2022, the coincidences have been such that every time speculative sentiment starts falling, some kind of news appears that momo gurus use to persuade their followers to buy. This time such news may appear from other earnings that have yet to come. In The Arora Report analysis, if good news does not appear, the stock market is ripe for a pullback.
- Of note are Alphabet (GOOG, GOOGL) earnings. Alphabet reported good earnings, but the stock is being weighed down by spending on AI.
- 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.
Germany
Flash Manufacturing PMI came at 42.6 vs. 44.1 consensus. A number less than 50 is considered economic contraction. Deepening economic contraction in Germany is impacting the rest of the Eurozone.
Magnificent Seven Money Flows
In the early trade, money flows are negative in Apple (AAPL), Amazon (AMZN), GOOG, Meta (META), Nvidia (NVDA), Microsoft (MSFT), 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.
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 draw of 3.9M barrels vs. a consensus of a draw of 2.47M 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) whales continue to push the rumor that Trump could set up a national bitcoin reserve. The rumor continues to bring buying to bitcoin.
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 $2418, silver futures are at $29.45, and oil futures are at $77.76.
S&P 500 futures are trading at 5545 as of this writing. S&P 500 futures resistance levels are 5622, 5748, and 5926: support levels are 5500, 5400, and 5256.
DJIA futures are down 206 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.
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.
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.
