By Nigam Arora
To gain an edge, this is what you need to know today.
Semi Mania
Please click here for a chart of Broadcom stock (AVGO).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of AVGO stock is being used to illustrate the point. Broadcom is a semiconductor company that has diversified into software. AVGO stock has run up primarily because of its custom AI chip offerings.
- The chart shows AVGO stock ran up going into earnings. The buying was mostly from the momo crowd. Momo gurus were predicting blowout earnings from Broadcom and the stock going to the moon after earnings.
- As a member of The Arora Report, you have been ahead of the curve. We previously shared with you that earnings estimates are very high and there is a fair probability of disappointments.
- The chart shows a big drop in AVGO stock after earnings.
- This morning, the momo crowd is aggressively buying AVGO stock after the big drop. Prudent investors should carefully watch to see if AVGO stock breaks below zone 1 (support), shown on the chart, or rebounds on momo crowd buying.
- In the early trade, most semiconductor stocks have opened significantly lower. However, the momo crowd is aggressively buying the dip. As a reference, leveraged semiconductor ETF SOXL closed yesterday at $280.54. This morning, it has traded as low as $240.11. Prudent investors should carefully watch how SOXL behaves.
- Here are key pieces of data about Broadcom earnings, so you are can develop a good understanding of what is going on:
- Revenue rose by 48% to $22.2B vs. $22.1B consensus. Whisper numbers were north of $24B.
- AI semiconductor revenue came at $10.8B vs. $10.7B consensus. Whisper numbers were north of $13B.
- The company is projecting AI semiconductor revenue of $16B for fiscal third quarter vs. $17.2B consensus. Whisper numbers were north of $20B.
- EBITDA guidance came at 68.0% vs. 69.1% consensus.
- Prudent investors need to remember stocks move based on the difference between real reported numbers and whisper numbers. Whisper numbers are the numbers analysts privately share with their best clients. These numbers are often different from the numbers the same analysts publish for public consumption. Consensus numbers are the average of the numbers published for public consumption.
- In an unusual move, the world’s smartest banker Jamie Dimon is pitching in a live discussion the SpaceX IPO to 2500 high net worth clients of JPMorgan (JPM). The event is being telecast to 90 JPMorgan locations. Not only is such a pitch by the CEO of the largest bank unusual, it also signals reconciliation between Elon Musk and Dimon after years of disputes.
- Initial jobless claims came at 225K vs. 216K consensus. This is not of concern.
- The official jobs report will be released tomorrow at 8:30am ET.
- There is a dichotomy this morning in the stock market. DJIA is going up, but Nasdaq is down. The reason DJIA is going up is because oil and yields are falling. The reason Nasdaq is going down is Broadcom earnings.
- Oil and yields are falling due to the U.S. saying that Israel and Lebanon have reaffirmed the ceasefire. If you are keeping track, the ceasefire is not new news; it is just reaffirmation. It is important to note that despite this announcement, fighting continues in southern Lebanon. There is also optimism on President Trump saying there is good progress in talks with Iran. Prudent investors should note that Iran is saying there is no progress.
- 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.
Risk To AI Trade From Japan
In The Arora Report analysis, the bank of Japan is likely to raise interest rates this month. This is important due to the carry trade. In the carry trade, funds have borrowed hundreds of billions of dollars in Japan and invested in the U.S., primarily in the AI trade.
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 positive in Apple (AAPL), Amazon (AMZN), and Microsoft (MSFT).
In the early trade, money flows are neutral in Alphabet (GOOG).
In the early trade, money flows are negative in Meta (META), Nvidia (NVDA), 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) stocks 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 *** gold in the early trade. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). 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 seeing selling. Bitcoin has broken below the important support level of $65,000.
Markets
Interest rates are ticking down, and bonds are ticking up.
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.
S&P 500 futures are trading at 7550 as of this writing. S&P 500 futures resistance levels are 7700, 7900, and 8000 : support levels are 7318, 7194, and 7032.
DJIA futures are up 472 points.
Gold futures are at $4537, silver futures are at $74.76, and oil futures are at $92.89.
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.
