By Nigam Arora
To gain an edge, this is what you need to know today.
Disruption In Software Creating Opportunities
Please click here for a chart of software company Atlassian stock (TEAM).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of TEAM stock is being used to illustrate the point.
- The chart shows that in 2021, TEAM stock ran as high as $483.13. The rise was due to the momo crowd buying software stocks at that time like there was no tomorrow. The momo crowd was excited about corporations hiring more people and more licenses for seats for software companies during the pandemic era.
- The chart shows the momo crowd lost their shirts when the bear market came in 2022.
- The chart shows the momo crowd ran up TEAM stock again in 2024 and early 2025 as the momo crowd was influenced by momo gurus’ highly flawed analysis that Atlassian would be a beneficiary of artificial intelligence.
- The chart shows that the momo crowd has lost its shirt again as it has become evident that contrary to momo gurus’ prior analysis, TEAM stock is a loser from AI.
- The chart shows TEAM stock has lost 83% from its high.
- In The Arora Report analysis, a fortune is to be made from disruption in software. First, investors must learn the characteristics of the winning software stocks and characteristics of the losing software stocks.
- Here are the structural characteristics of winning software stocks:
- The main repository of data for the enterprise
- Private data
- Focus on large enterprises
- High consumption so that the switch from a seat based model to a consumption based model is profitable.
- High outcome value so that the switch from a seat based model to an outcome based model is profitable.
- Regulatory moat
- High switching costs
- Control over mission critical systems
- Embedded enterprise relationships
- AI enabled productivity tailwinds
- Strong balance sheets
- Here are the structural characteristics of losing software stocks:
- Primarily based on accessing data and presenting it with a GUI or a custom search
- Focus on workflow
- No proprietary data
- Public data
- No regulatory moat
- Focus on small and medium size businesses
- Switching from a seat based model to a consumption based model will result in significant loss of revenues.
- Switching from a seat based model to an outcome based model will result in significant loss of revenues.
- Increased commoditization
- AI driven substitution
- Customer churn risk
- Here is the plan:
- The Arora Report will be publishing a list of nine winners in software and nine losers in software.
- Buy the winners when they are in Arora buy zones.
- Short sell the losers when they are in Arora short zones.
- Signals from the long side will be in ZYX Buy. Signals from the short side will be in ZYX Short. Signals on ETFs will be in ZYX Allocation.
- It will not be a straight line. There will be many twists and turns. At times, it will be treacherous. You will need expert guidance.
- Durable orders data is stronger than expected
- Durable orders came in at -1.4% vs -2.6% consensus.
- Durable orders ex-transportation came at 0.9% vs 0.3% consensus.
- FOMC minutes will be released today at 2pm ET and may be market moving.
- PCE, the Fed’s favorite inflation gauge, will be released on Friday at 8:30am ET.
- There is speculation that the Supreme Court may announce its tariff decision on Friday.
- 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.
Housing Starts
The just released data came stronger than expected. Here are the details:
- Housing starts came at 1.404M vs. 1.320M consensus.
- Building permits came at 1.448M vs. 1.412M consensus.
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 Amazon (AMZN), Microsoft (MSFT), and Nvidia (NVDA).
In the early trade, money flows are neutral in Apple (AAPL), Alphabet (GOOG), and Tesla (TSLA).
In the early trade, money flows are negative in Meta (META).
In the early trade, money flows are mixed 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 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 up, and bonds are ticking down.
The dollar is 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.
S&P 500 futures are trading at 6876 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 up 42 points.
Gold futures are at $4974, silver futures are at $76.48, and oil futures are at $63.84.
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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This post was published yesterday on ZYX Buy Change Alert.
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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.
