By Nigam Arora
To gain an edge, this is what you need to know today.
Deceptive Earnings Narrative
Please click here for a chart of SpaceX (SPCX).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of SPCX stock is being used to illustrate the point.
- SPCX stock is important because it is creating positive speculative sentiment as of this writing.
- The chart shows that when the media frenzy was at its peak to pump SPCX stock, SPCX stock topped out.
- The chart shows that when media frenzy reached peak negativity, SPCX stock bottomed out.
- Newer investors should pay special attention to the foregoing. In SPCX, a large number of bag holders have been created who went all in on the peak media pump and took huge losses by selling on the peak media negativity.
- The chart shows a rally in SPCX stock as media negativity peaked around the lock-up expiration.
- As an Arora Report member, you were ahead of the curve. On June 22, we wrote:
There is a fair probability that on August 6, SPCX stock could rally if a short squeeze starts, instead of falling big time as the media is predicting.
- The chart shows heavy volume on short squeeze.
- As a full disclosure, ZYX Change Alert members received a buy signal to capture the rally. Previously, ZYX Buy Change members also bought SPCX in the IPO at $135. A partial profit signal was given around $200, and stops were moved upwards to protect profits.
- In the middle of the uber bullishness right now, prudent investors need to be very careful because the earnings narrative driving the uber bullishness is deceptive. The S&P 500 (SPX), as represented by SPY, has broken out on this deceptive earnings narrative. Here are the details:
- The headline: S&P 500 earnings growth for Q2 is about 50%
- Analyst consensus going into the quarter: about 23%
- The headline number is heavily distorted by extraordinary investment-related gains at Alphabet (GOOG, GOOGL) and Amazon (AMZN).
- Alphabet reported about a $98 billion investment-related gain.
- Amazon reported about $53 billion of other income, primarily related to investments including Anthropic.
- These are not recurring operating earnings.
- After taking out the Alphabet and Amazon distortion, earnings growth falls to roughly 31% – 32%. This is still very strong, but nowhere near the 50% headline.
- This is a semiconductor supercycle. The open question is how long it will last.
- Semiconductor and semiconductor-equipment earnings are growing about 135%
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- Strip out both the Alphabet and Amazon distortion and the semiconductor surge from headline earnings growth, and the underlying S&P 500 earnings growth is roughly 22% – 23%. This is still excellent, but less than half the headline number.
- Consumer Price Index (CPI) will be released on Wednesday and has the potential to move the markets.
- President Trump is shifting from threatening attacks on Iran to using economic pressure as the main tool.
- Oil is taking President Trump’s shift as an admission that Iran has the upper hand. For this reason, oil prices are rising. For the time being, the momo crowd is oblivious. However, if oil prices continue to rise, it will be negative for the stock market.
- 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.
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), Nvidia (NVDA), Microsoft (MSFT), Meta (META), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are negative in Alphabet (GOOG).
In the early trade, money flows are negative in S&P 500 ETF (SPY) and in 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 *** oil in the early trade.
For longer-term, please see oil ratings.
Bitcoin
Bitcoin (BTC.USD) is seeing selling.
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 7776 as of this writing. S&P 500 futures resistance levels are 8000, 7900; support levels are 7700, 7318, and 7194.
DJIA futures are down 84 points.
Gold futures are at $4389, silver futures are at $63.95, and oil futures are at $79.54.
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.
