By Nigam Arora & Dr. Natasha Arora

Weekly Digest from The Arora Report is popular among serious investors and money managers because they have found studying insights from the prior week gives them an edge over the coming weeks. Here is the day by day rundown from the morning capsules made available every morning before the market open in the Real Time Feeds to the paying subscribers of The Arora Report. 

Please scroll down for the section ‘Protection Bands and What To Do Now.’

SEMICONDUCTORS, THE LIFEBLOOD OF THE MODERN ECONOMY, BREAKOUT AGAIN ON AI EXCITEMENT

January 19, 2024

To gain an edge, this is what you need to know today.

Semiconductors

Please click here for a chart of semiconductor ETF SMH.

Note the following:

• Semiconductors are the lifeblood of the modern economy, just like oil is the lifeblood of the old economy.
• The chart shows that semiconductors have broken out again.
• The price pattern shown on the chart is a positive one.  In traditional technical analysis, this price pattern indicates semiconductors will go higher.
• RSI on the chart shows that semiconductors are now overbought.  This indicates that there may be a shallow pullback in the overall uptrend for the longer term.
• As we have been sharing with you, semiconductors are the leading sector and often pull the entire stock market higher or lower.  For this reason, prudent investors pay attention to semiconductors.  Semiconductors are the best performing major sector.  In ZYX Allocation, ETF SMH has 16% allocation.  However, when other ETFs in the portfolio with semiconductor holdings are included, the total allocation to semiconductors in the portfolio is approaching 20%.  This is the maximum allowed. 
  
• The importance of semiconductors is underscored by the fact that Nvidia (NVDA) alone is about to exceed the market capitalization of the entire energy sector.
• The trigger for the breakout in semiconductors was earnings from Taiwan Semiconductor (TSM).  For details of TSM earnings, please see yesterday’s Morning Capsule.  Initially, on release of earnings, TSM stock was up only 1.5% in Taiwan.  However, when the company made very bullish comments on artificial intelligence, TSM stock took off, taking the entire tech sector higher.
• Adding to the enthusiasm is the launch of Vision Pro mixed reality headset by Apple (AAPL).  After the fears created by three downgrades, all fears about Apple’s stagnant growth disappeared after an upgrade by a major bank. Also pushing Apple higher is the launch of Samsung’s (SSNLF) AI phone.  The speculation is that if Apple were to launch an AI iPhone, it would be a blockbuster.
• Yesterday, during the mid-day, the stock market pulled back as interest rates rose.  However, buyers rushed in, aggressively buying the shallow dip, especially tech stocks.
• A significant part of the rally yesterday afternoon was short squeeze.  In the early trade this morning, short squeeze continues, driving stocks higher. Prudent investors need to remember that short squeezes tend to end.
• Michigan consumer sentiment will be released at 10am ET.  This data may move the stock market.
• 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.

China

The Chinese government is back to its old tricks again.  Apparently, at the urging of the government, the largest brokerage in China is no longer allowing short sales.  The purpose is to try to run up the Chinese stock market.  Chinese stocks are suffering, in part, because money is flowing out of China and flowing into India.  ZYX Emerging has covered both China and India continuously for 16 years. Chinese stocks are now some of the cheapest stocks in the world at a time when U.S. stocks are very expensive.

All prudent investors should consider diversifying into emerging markets for the long term.

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.

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

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. Bitcoin miners continue to see aggressive short selling.

Markets

Our very, very short-term early stock market indicator is ***.  Keep in mind today is Friday.  Short squeezes tend to occur on Fridays.  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 $2037, silver futures are at $22.85, and oil futures are at $73.92.

S&P 500 futures are trading at 4834  as of this writing.  S&P 500 futures resistance levels are 4852, 4918, and 5020: support levels are 4770, 4713, and 4600.

DJIA futures are up 179 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.

SEMICONDUCTOR EARNINGS LIFT TECH STOCKS ON AI AND BOOST ENTIRE STOCK MARKET

January 18, 2024

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.

Housing

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.

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

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

Bitcoin (BTC.USD) is range bound.

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 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.

RAISE CASH AND HEDGES, STOCK MARKET BEARS DRAWING THE WRONG CONCLUSION FROM BITCOIN ETFS AND STOCKS

January 17, 2024

To gain an edge, this is what you need to know today.

Raise Cash And Hedges

You may recall that in the beginning of November, there were Arora signals to deploy cash and reduce hedges.  Those signals have proven spot on as the stock market ran up significantly after those calls.

On December 27, the Arora signal was to start taking profits on tactical positions.  So far, December 28 has turned out to be the top in Nasdaq 100 and, more importantly, in speculative stocks.  The Arora signal has been to continue taking profits on tactical positions.

The new Arora signal is to slightly raise cash and hedges.

When you continue making adjustments based on the new data, it can add up to very significant additional returns over your lifetime.

There are three immediate triggers behind this call:

• Retail sales data
• Data from China.
• The probability of a rate cut in March in swap markets falling to 65% from 80%
• Rising dollar

To learn more about the adaptive system, with inputs in ten categories, please click here.  In plain English, adaptive means the system automatically changes itself in response to changing market conditions.

For details, please see the section titled “Protection Band And What To Do Now” below.   There will be a separate post on hedges.

Speculative Sentiment

Please click here for a chart of bitcoin miner Marathon Digital stock (MARA).

Note the following:

• The Morning Capsule is about the big picture, not an individual stock.  The chart of MARA is being used to illustrate the point.
• Lately bitcoin has been a leading indicator of speculative sentiment in the stock market.  For this reason, you need to pay attention to bitcoin even if you are not interested in bitcoin.  

• The chart shows when 11 spot bitcoin ETFs were approved.
• The chart shows a 40% drop in MARA since the approval.
• Stock market bears are interpreting these moves as money exiting bitcoin.
• In The Arora Report analysis, this interpretation by stock market bears is wrong as the data indicates otherwise.  In The Arora Report analysis, money is simply shifting in bitcoin and bitcoin related assets.  
  • About $1.4T has moved in low cost bitcoin ETFs.
  • About $500M have moved out of high cost ETF GBTC.
  • About $100M have moved out of bitcoin miners and other bitcoin related stocks.
  • On a net basis, money has moved into bitcoin.
• Irrespective of your opinion of bitcoin, money is to be made in bitcoin, both from the long and short sides.  The prerequisite to consistently making money in bitcoin is to understand the secrets of bitcoin whales.  To provide you with next level knowledge, a podcast titled “WHALES’ SECRETS YOU NEED TO KNOW: CAPTURING BITCOIN PROFITS PART 1” is now live in Arora Ambassador Club.
• Data from China was disappointing.  Please see the section below.
• Retail sales came hotter than expected.  This means the consumer continues to spend.  This data goes against the market consensus of immaculate everything – the landing, the Fed, interest rates, earnings, adoption of AI, Russia, China, and the Middle East. Here are the details:
  • Headline retail sales came at 0.6% vs. 0.4% consensus.
  • Retail sales ex-auto came at 0.4% vs. 0.2% consensus.
• The Fed’s Beige Book will be released at 2pm ET.
• In late 2023, a statement by the Fed’s Christopher Waller triggered stock and bond market rallies when he unexpectedly talked about potential rate cuts in 2024.  The market has been eagerly waiting for his new comments.  Waller’s new comments disappointed the market as he was more hawkish than the consensus.  Waller sees no need to quickly cut rates.
• There is more Fed speak that might move the stock market.  Speakers include John Williams and Michelle Bowman.
• Among important earnings, earnings from Charles Schwab (SCHW) and Interactive Brokers (IBKR) are disappointing.
• 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.

China

Stocks in Hong Kong fell 3.7% on disappointing data.

• China’s Q4 GDP came at 1.0% quarter-over-quarter vs. 1.0% consensus.  GDP came at 5.2% year-over-year vs. 5.3% consensus.  In The Arora Report analysis, this data is not reliable.  In The Arora Report analysis from the other data, the economic growth is likely around 4%.
• Retail sales came at 7.4% year-over-year vs. 8.0% consensus.
• Most troubling, house prices in major Chinese cities fell by 0.4% in December month-over-month.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Nvidia (NVDA).

In the early trade, money flows are negative in Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).

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 *** stocks in the early trade.

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

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

Please see above.

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 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.

Gold futures are at $2025, silver futures are at $22.86, and oil futures are at $70.64.

S&P 500 futures are trading at 4766 as of this writing.  S&P 500 futures resistance levels are 4826, 4852, and 4918: support levels are 4713, 4600, and 4460.

DJIA futures are down 174 points.

DOLLAR RISE ON TAIWAN AND FED DAMPENS BUT TAX DEAL BOOSTS ANIMAL SPIRITS IN THE STOCK MARKET

January 16, 2024

To gain an edge, this is what you need to know today.

Dollar Rises

Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• The chart shows the stock market is consolidating in the resistance zone.
• The chart shows that in the early trade today, the stock market is experiencing a pullback on higher dollar and rising yields.
• The dollar is rising for two reasons:
  • The pro-independence party won the election in Taiwan.  So far, the weather in the Taiwan Strait is bad and precludes any military action.
  • After being convinced that there will be six rate cuts this year starting in March, the consensus is beginning to waver.  Voices of those who think a rate cut in March is premature are getting louder.
• As the dollar rises, it negatively impacts the earnings of multinationals.
• Yields are also rising on concerns that the market consensus of a rate cut in March is premature.
• Rising dollar and rising yields are dampening animal spirits in the stock market.
• Notable earnings reported this morning are Goldman Sachs (GS) and Morgan Stanley (MS).  On the surface, earnings look good.  Initially, both stocks rose.  However, as investors look deeper into earnings, selling has come in to both stocks as of this writing in the premarket.
• AMD stock (AMD) is seeing very aggressive buying this morning on upgrades by three different banks, with targets ranging from $170 – $200.  Of note is that AMD has run up higher than the prior targets of the two banks that were at $120 and $130.  AMD is trading at $150.11 as of this writing in the premarket.
• Trump’s clear win in Iowa is moving a large number of stocks.  Beneficiaries of a Trump presidency are seeing buying.
  • Of note is Digital World Acquisition Corp. (DWAC), the owner of Trump’s social media company TRUTH Social.  DWAC stock is rising.
• Apple (AAPL), due to its heavy weight in indexes, has a disproportionate impact on the stock market.  The stock market is impacted by a downdraft in AAPL this morning.  If Apple does not prevail in its fight with Masimo (MASI), it is planning to remove the blood-oxygen sensor from its watches to get around a ban over a patent dispute with Masimo.
  • There are also reports that Apple is discounting iPhones in China due to competition from Huawei.  You may recall that we previously informed you about the semiconductor breakthrough that the Chinese had achieved.  We had shared with you that the breakthrough had put Apple at risk.
• In Washington, both parties have announced a bipartisan tax deal that will provide $78B in tax breaks for businesses.  If implemented, the deal will boost the stock market.
• 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.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Microsoft (MSFT) and Nvidia (NVDA).

In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).

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.

Gold

Gold is priced in dollars.  For this reason, gold falls when the dollar rises.

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

Tensions are increasing in the Middle East.

• Houthis hit a U.S. owned vessel in the Red Sea.
• Iran fired missiles on targets in northern Iraq and Syria.

Normally, oil is expected to rise when tensions in the Middle East rise.  However, oil is being constrained by the rising dollar.

The momo crowd is *** in oil in the early trade.  Smart money is *** in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin (BTC.USD) ran above $49,000 on the approval of ETFs but has now pulled back to $42,815 as of this writing.  Bitcoin has experienced a sell the news reaction.

Bitcoin miners such as Marathon Digital (MARA) and Riot Platforms (RIOT) have experienced significant short selling.

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 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.

Gold futures are at $2043, silver futures are at $23.21, and oil futures are at $72.79.

S&P 500 futures are trading at 4794 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 152 points.

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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.