By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Taiwan Semiconductor Earnings
Please click here for a chart of Taiwan Semiconductor Manufacturing Company stock (TSM).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of TSM stock is being used to illustrate the point.
- TSM is one of the most important companies in the world as it is the largest semiconductor foundry. TSM manufactures Nvidia’s (NVDA) AI chips and chips that go in Apple’s (AAPL) iPhones.
- The chart shows that TSM has technically broken out after earnings release.
- TSM is reporting earnings better than feared but less than the whisper numbers. Here are the important details:
- TSM reported earnings of $1.44 per share vs. $1.37 consensus. However, note that whisper numbers were over $1.50.
- TSM reported revenues of $19.62B vs. $19.45B consensus.
- TSM is projecting Q1 revenue of $18 – $18.8B vs. $18.26B consensus.
- Expect stock market bulls to use TSM earnings to proclaim that the semiconductor cycle has bottomed. Since semiconductors are the leading sector, expect momo gurus to use this as a reason to aggressively buy stocks.
- Investors should start with Arora’s Third Law of Investing and Trading which states, “Making investing and trading decisions based on probabilities is the only realistic and profitable approach.” In The Arora Report analysis, investors should take a more nuanced view as follows.
- The demand for AI chips will remain robust.
- Demand for PC chips will likely accelerate as AI PCs hit the market.
- Demand for smartphone chips will depend on the timing of AI phones. Samsung (SSNLF) has already introduced an AI phone.
- Demand for IoT chips is likely to stay weak.
- Demand for analog chips is likely to stay weak.
- Demand for automotive chips is likely to stay weak.
- The release of jobless claims data temporarily reduced the aggressiveness of buying. Jobless claims came much better than expected. Initial jobless claims came at 187K vs. 206K consensus. This data argues against the stock market consensus of immaculate everything – the landing, the Fed, interest rates, earnings, adoption of AI, Russia, China, and the Middle East.
- We have been sharing with you the concern that consumers at the lower end are stretched and their credit cards are maxed out. Discover (DFS), a major credit card issuer to lower end consumers, reported terrible earnings. The stock was down over 10% but is being bought as of this writing as a major bank is issuing a buy recommendation. Of note, the same bank was calling for investors to buy the stock before the earnings. Investors should be careful about following recommendations from a Wall Street bank when the bank has been wrong on a stock.
- There are several developments on the geopolitical front that prudent investors should stay attuned to.
- As the weather in Taiwan Straits has improved, the Chinese military has started maneuvering around Taiwan.
- The U.S. had attacked Yemen in the hopes that the U.S. attack would make Houthis back off from firing missiles at commercial vessels. After the U.S. attack, instead of backing off, Houthis have doubled their attacks on commercial vessels. As a reprisal, the U.S. attacked Yemen again yesterday evening.
- There is a new hot spot. Pakistan fired missiles on Iran. Pakistan is retaliating against an attack on a border town by missiles from Iran. The conflict is likely to be contained. However, if it spreads, there is a reason for investors to be concerned.
- 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.
New housing activity remains very strong. Here is just released data:
- Housing starts came at 1.460M vs. 1.417M consensus.
- Building permits came at 1.495M vs. 1.478M consensus.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Nvidia, Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple.
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.
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 is seeing buying on potential escalation of conflict in the Middle East.
The momo crowd is *** oil in the early trade. Smart money is *** in the early trade.
For longer-term, please see oil ratings.
Bitcoin (BTC.USD) is range bound.
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 are ticking up, and bonds are ticking down.
The dollar is slightly 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.
Gold futures are at $2013, silver futures are at $22.63, and oil futures are at $72.37.
S&P 500 futures are trading at 4790 as of this writing. S&P 500 futures resistance levels are 4826, 4852, and 4918 : support levels are 4770, 4713, and 4600.
DJIA futures are down 63 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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