AI Driven Leading Sector

Please click here for a chart of semiconductor ETF SMH.

Note the following:

• The chart shows that year to date SMH is up 45%.
• The chart shows that semiconductors took another leg up after Nvidia’s (NVDA) blowout earnings due to demand for Nvidia GPUs driven by ChatGPT.
• The chart shows that volume was high when semiconductors took this leg up.  This indicates conviction.
• Semiconductors have become the blood of the new economy.  In the first stage of the AI infrastructure build up, semiconductors are the early beneficiaries.
• With the exception of the last few years, semiconductor stocks used to be cyclical stocks and they often slumped in the summer.  Prudent investors typically bought them during the summer slump.  The last few years have been unusual.  This year there is an additional buying frenzy because of AI.  Having said that, if there is a slump this summer in semiconductor stocks, that will be a buying opportunity.
• Here is the key question for investors: Will semiconductor stocks along with other AI stocks continue to drive the stock market or will they pull back?  The probability is high that if semiconductor stocks pull back, the entire market will pull back.
• The Core Model Portfolio in ZYX Allocation has up to 12% allocation to semiconductor ETF SMH.  In addition, there are semiconductors in other ETFs in the portfolio.  Together, semiconductors are about 15% of the ZYX Allocation Core Model Portfolio.  This is the highest weight of any one sector in the ZYX Allocation Core Model Portfolio.  Our rules limit the maximum allocation in one sector to 20%.  The plan is to increase semiconductor allocation in due course.
•  In ZYX Buy Model Portfolio, there are four semiconductor stocks: AMAT, NVDA, NXPI, and QCOM.  There are additional semiconductor stocks in ZYX Buy in the portfolio that surrounds the Model Portfolio.  The plan is to add additional semiconductor stocks and increase the position size in due course.
• The foregoing illustrates the merit of how Corporate Bundle 1 is structured.  The data shows that over the last 15 years, investors who allocate their money in accordance with the “Accelerating Wealth Generation” section of the Trade Management Guidelines have done the best.
• This week, money is flowing into laggards, i.e. non-AI stocks.  The move to laggards makes a lot of sense if there is going to be no landing or a soft landing.  On the other hand, buying the laggards at this time will not be a smart move if there is a recession.
• You need to be aware that historically, the stock market is enthusiastic, assuming that there would not be a recession or that the recession would be shallow well ahead of the recession. In all recessions, since World War II, with the exception of 2002.  Such an assumption on the part of the market was proven wrong.  Typically, investors who bought laggards before the recession incurred major losses during the recession and ended up selling the laggards near the lows. 
• We will be carefully watching money flows into laggards.  If money flows continue in the laggards, there may be signals to take tactical positions in some laggards with the intention of taking profits before a recession.

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 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 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 $1980, silver futures are at $24.43, and oil futures are at $71.45.

S&P 500 futures are trading at 4297  as of this writing.  S&P 500 futures resistance levels are 4318, 4400, and 4460: support levels are 4200, 4000, and 3950.

DJIA futures are down 75 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 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.

Today Might Be The Day

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 that the stock market is in the resistance zone.
• The chart shows that in spite of aggressive momo crowd buying and the AI frenzy, the stock market is having difficulty moving above the top band of the resistance zone.
• The chart shows that RSI is overbought.  When RSI is so overbought, the stock market is vulnerable to a pullback.
• Initial jobless claims jumped much higher than expected; they came at 261K vs. 237K consensus.  This is the highest number since October 2021.
• It is best to look at a four week moving average of jobless claims because they are so volatile.  The four week moving average jumped to 237.25K from 229.75K previously.
• Sometime down the road, it is conceivable that we may look at today as the day when it became obvious that aggressive Fed rate hikes are having an impact on the job market.  Until now, the job market has stayed very strong.  In recent history, it is unprecedented for the job market to stay this strong in the face of aggressive Fed rate hikes.  
• As we have been sharing with you, jobless claims is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories.  In plain English, adaptiveness means that the model changes itself with market conditions.  Please click here to see how this is achieved.  One of the reasons behind The Arora Report’s unrivaled performance in both bull  and bear markets is the adaptiveness of the model.  Most models on Wall Street are static.  They work for a while and then stop working when market conditions change.
• The new data provides ammunition to both stock market bulls and bears.
  • Bulls will use this data to promote the narrative that the Fed will have to cut rates and that is bullish for the stock market.
  • Bears will use this data to promote the narrative that the economy has held up because of the strong consumer, but the new data is showing that the consumer is about to get hit.  A weak economy is bearish for 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.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 stocks in the early trade.  Smart money is 🔒 in the early trade.

Gold

The momo crowd is 🔒 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 🔒 in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Whales are managing to hold bitcoin above $26,000.

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 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 $1974, silver futures are at $23.98, and oil futures are at $73.00.

S&P 500 futures are trading at 4276 as of this writing.  S&P 500 futures resistance levels are 4318, 4400, and 4460: support levels are 4200, 4000, and 3950.

DJIA futures are down 57 points.

AI Frenzy

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 compares S&P 500 ETF SPY to equal weighted S&P 500 ETF RSP, Nasdaq 100 ETF QQQ, small cap ETF IWM, and 7-10 year Treasury ETF IEF.
• The chart shows that QQQ has outperformed RSP by 23.07%.
• The chart shows that SPY has outperformed RSP by 9.94%.
• The reason behind the outperformance of QQQ and SPY is the AI frenzy.
• Most of the outperformance is driven by seven stocks: Alphabet (GOOG, GOOGL), Amazon (AMZN), Apple (AAPL), Meta (META), Microsoft (MSFT), Nvidia (NVDA), Tesla (TSLA).
• Throughout the last year, tech stocks were very sensitive to interest rates.  IEF on the chart shows that interest rates have risen recently.  However, the AI frenzy is so powerful that tech stocks have totally ignored the rise in interest rates.  For those who want next-level knowledge on this topic, there are several podcasts in Arora Ambassador Club.
• Here is the key question for investors: Will the rest of the stock market catch up to the seven stocks driving the rally or will the seven stocks pull back?
• As we previously shared with you, 4300 level in S&P 500 is a magnet.  As of this writing, S&P 500 futures are trading at 4292.

Slowing Global Growth

China is still factory to the world.  Chinese exports fell 7.5% year-over-year vs. consensus of a drop of 0.4%.  This indicates a weakening global economy.

The Paris based Organization for Economic Co-operation and Development (OECD) is projecting global growth at 2% this year and 2.9% in 2024 vs. 3.4% average of the last seven years.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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

Coinbase (COIN) is facing an existential threat from the SEC lawsuit. How is the momo crowd reacting?  They are aggressively buying COIN stock.  Most notable among the buyers is Cathie Wood.  She has legions of followers who blindly copy her every move.

Whales ran up bitcoin yesterday, presumably to distract from SEC lawsuits.  The rally is easing this morning.

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 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 $1974, silver futures are at $23.68, and oil futures are at $72.37.

S&P 500 futures are trading at 4292  as of this writing.  S&P 500 futures resistance levels are 4318, 4400, and 4460: support levels are 4200, 4000, and 3950.

DJIA futures are up 20 points.

Precedence to Return Of Capital

Please click here for a chart of bitcoin ETF (BITO).

Note the following:

• The Morning Capsule is about the big picture.  The chart of BITO is being used to illustrate the point.
• The chart shows that bitcoin ETF BITO has significantly fallen.  This ETF is based on bitcoin futures and is an easy way for most investors to trade bitcoin.  You can trade it just like any other ETF.
• As a full disclosure, ZYX Short has a position in BITO.  Now ZYX Short also has positions in COIN and bitcoin mining company MARA.  ZYX Buy has a position in an inverse bitcoin ETF BITI that goes up when bitcoin goes down.
• This is one of the more important Morning Capsules irrespective of your personal leaning towards cryptos.  The reason is that the lesson also applies to most of your investments.
• We have often shared with you an important rule to give precedent to return of capital over return on capital.  Consistently following this rule can significantly increase the profits you extract out of the markets over your lifetime.  This rule was part of the equation that helped The Arora Report make spot on calls on cryptos.  
• The big news is that the SEC is seeking to freeze the assets of Binance and appoint a receiver.  Binance is the largest crypto exchange in the world.
• Historically, SEC seeks to freeze assets and appoint a receiver only in cases of ponzi schemes and very serious fraud.
• The SEC complaint is 130 pages long and contains 13 counts against Binance and its CEO Changpeng Zhao.
• For investors, the most important count to understand is that of wash sales.  Wash sales are techniques to manipulate the market.  Binance diverted customer funds through a trading entity Sigma Chain, also controlled by Zhao.  Sigma Chain used the money to manipulate prices and used wash sales to give the appearance of much larger liquidity than was actually there.  In a wash sale, the same entity buys and sells the same securities to itself.
• Another important count is that Binance commingled customer funds and transferred them to an entity called Merit Peak, which was owned by Zhao.
• To appease U.S. regulators, Binance set up a separate U.S. entity.  However, most of the employees of this entity are based out of Shanghai.
• In another bombshell, SEC is also suing the largest U.S. crypto exchange Coinbase (COIN) for operating as an unregistered securities exchange, broker, and clearing agency.
• Keep in mind that most of the innocent investors who have been hurt and will get hurt are the same ones who are part of the momo crowd and relentlessly run up stocks without any analysis.
• The foregoing shows that the following Arora calls have been spot on:
  • Do not invest in cryptos for the long term.
  • Only trade cryptos carefully from both the long and short sides, but mostly short side.
  • Most crypto tokens are fraud.
  • The U.S. government would never let cryptos become mainstream in the U.S.
  • Bitcoin is controlled by whales.
  • Whales pump bitcoin to lure in mom and pop and then dump it to reduce  their own exposure.
  • Over a period of time, we have received a large number of emails from our members requesting us to start a new crypto service.  The vast majority of our competitors started crypto services.    The Arora Report never started a crypto service, and in the process chose to forgo millions of dollars in revenues.
• In the stock market, there is some disappointment that Apple stock (AAPL) pulled back after the announcement of its mixed reality headset.  However, the stock market continues to levitate.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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 is holding above the support of $25,000.

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 $1976, silver futures are at $23.65, and oil futures are at $70.69.

S&P 500 futures are trading at 4278 as of this writing.  S&P 500 futures resistance levels are 4318, 4400, and 4460: support levels are 4200, 4000, and 3950.

DJIA futures are down 27 points.

Mixed Reality Hype

Please click here for a chart of Apple stock (AAPL).

Note the following:

• The Morning Capsule is about the big picture, not an individual stock.  The chart of Apple is being used to illustrate the point.
• The AAPL chart is a weekly chart to give investors a longer term perspective.
• The chart shows that AAPL stock is at the top band of the resistance zone.
• RSI on the chart shows that AAPL stock is very overbought.  When a stock is this overbought, it is vulnerable to a pullback.
• The trendline on the chart shows that the move up in Apple is now accelerating.
• Technical analysis is both a science and an art.  A move accelerating from the trendline, in traditional technical analysis, is bullish.  However, in The Arora Report analysis, such a move often occurs right before the pullback.
• Bulls are confident that the unveiling of Apple’s mixed reality headset will decisively push Apple stock above the resistance zone for a solid breakout.
• Bears point out the following indisputable facts:
  • Apple revenues have declined the last two consecutive quarters.
  • According to Apple itself, revenues are going to decline again this quarter, making it the third quarter in a row of decline.
  • For a stock with three quarters of declining revenues, AAPL is a very expensive stock.  AAPL is trading at a PE of over 28.
• As a full disclosure, AAPL is long from an average of $4.68 in ZYX Buy Model Portfolio, and the very long term Arora target zone is $255 – $270.
• Bulls contend that the hype over AR/VR (augmented reality / virtual reality)  headset is justified.
• Bears say that AR/VR headsets are clunky and too expensive.
• The AI frenzy appears to be slowing based on the data so far in the early trade.  However, AR/VR hype is picking up.
• It is instructive that most AI stocks are pulling back in the early trade despite significant pump on social media over the weekend.  Typically, retail investors buy at the regular market session open based on the media hype over the weekend.
• Apple’s mixed reality headset will be unveiled at WWDC today.
• Investors should also be aware that historically the “sell the news” reaction is common to Apple announcements in the short term.
• Apple’s AR/VR headset is the most important Apple announcement over the last decade.  The market reaction will be instructive for all investors.  The reason is that AAPL carries very heavy weight in indexes.

Momo Crowd And Smart Money In Stocks

The momo crowd is 🔒 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

Saudi Arabia has unilaterally cut oil production by 1M bpd.  Oil is giving up some of its earlier gains.

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 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 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 $1959, silver futures are at $23.48, and oil futures are at $73.61.

S&P 500 futures are trading at 4290  as of this writing.  S&P 500 futures resistance levels are 4318, 4400, and 4460: support levels are 4200, 4000, and 3950.

DJIA futures are up 8 points.