WEEKLY STOCK MARKET DIGEST: EVEN KING NVIDIA IS NOT IMMUNE TO WARNING SIGNS FOR PRUDENT INVESTORS IN THE STOCK MARKET THIS WEEK

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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.’

 

NVIDIA TRACES A NEGATIVE PATTERN, $5.5T QUAD WITCHING, SLOW GROWTH IN EUROPE

Jun 21, 2024

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

Negative Pattern

Please click here for a chart of Nvidia stock (NVDA).

Note the following:

  • The chart shows that NVDA stock opened higher yesterday.  The higher opening was the result of more good news, pump during the holiday the day before, and continuing momentum from retail investors rushing in head long to buy.
  • The chart shows that the stock closed lower than the prior trading day.
  • The foregoing is a negative pattern that shows up as a bearish engulfing candle on a day chart.
  • The pattern needs confirmation.  Confirmation will be achieved if there is follow through to the downside today.
  • The chart shows in the early trade, there is follow through to the downside.
  • The momo crowd has been aggressively buying the dip.
  • The chart shows that in spite of aggressive momo crowd buying, the VUD indicator was orange yesterday.  Orange indicating net supply of stock.  VUD indicator is the best way to ascertain net supply/demand in real time and is one of many proprietary indicators of The Arora Report.  Proprietary indicators give you big edges. 
  • If the incessant momo crowd buying causes the stock to close higher than the lower low shown on the chart, the pattern will be negated.
  • A similar pattern occurred in NVDA stock on March 8, 2024.  The pattern was followed by an approximate 20% drop in NVDA stock.
  • Setting technicals aside, when a stock goes down on good news, it is a sign that a stock is getting over owned.  In plain English this means that the stock is running out of buyers willing to buy at higher and higher prices, at least temporarily.
  • NVDA is now becoming a cult stock and many investors are emotional about it.  Newer members please note, members of The Arora Report are long NVDA stock from $12.55, and NVDA is a large position in The Arora Report Model Portfolio.
  • The notional value of quadruple witching today is about $5.5T.   In quadruple witching, stock index futures, futures options, stock options, and single stock futures expire.  Quadruple witching often leads to volatility.
  • A big part of the moves in the stock market this week have been related to quad witching.  Often, but not always, moves related to quad witching reverse the following week.
  • S&P Global PMIs will be released at 9:45am ET.  Existing home sales and leading indicators will be released at 10am ET.  These data may be market moving, but the market’s primary driver will be option expiration.
  • 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.

Europe

Stocks in Europe are weaker due to disappointing PMI data.  Here are the details:

  • Flash Manufacturing PMI came at 45.6 vs. 48.0 consensus.
  • Flash Services PMI came at 52.6 vs. 53.5 consensus.
  • The foregoing data is projecting slower growth.

Magnificent Seven Money Flows

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

In the early trade, money flows are negative in NVDA.

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.

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 seeing selling along with other speculative tech stocks.  Bitcoin has now fallen below $65,000.

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  down, and bonds are ticking up.

The dollar is range bound.

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 $2376, silver futures are at $30.33, and oil futures are at $8143.

S&P 500 futures are trading at 5539 as of this writing.  S&P 500 futures resistance levels are 5622 and 5748: support levels are 5500, 5400, and 5256.

DJIA futures are down 7 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.

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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 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.

 

QUAD WITCHING DRIVING AI STOCKS INCLUDING NVIDIA HIGHER, MORE ONE MONTH LOWS THAN HIGHS IN NASDAQ

Jun 20, 2024

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

Deteriorating Internals

Please click here for a chart of Nasdaq 100 ETF (QQQ).

Note the following:

  • The chart shows that Nasdaq 100 is way overextended above the support zone.
  • Overextended markets work only as long as momentum stays high.  If momentum stops, the market tends to pullback.
  • The chart shows that the volume is low as the market drives higher.  This indicates lack of conviction.
  • RSI on the chart shows Nasdaq 100 is very overbought.  Risk and reward are two sides of the same coin.  A market as overbought as this one is risky.
  • In The Arora Report analysis, prudent investors should pay attention to deteriorating internals of Nasdaq 100.  There are more one month lows than one month highs in the Nasdaq 100 stocks.  
  • The stock market, including AI stocks such as Nvidia (NVDA), Hewlett Packard Enterprise (HPE), Dell (DELL), Supermicro (SMCI), and Taiwan Semiconductor (TSM), are being pulled higher by quadruple witching.  Tomorrow is quadruple witching.    In quadruple witching, stock index futures, futures options, stock options, and single stock futures expire.  Quadruple witching often leads to volatility.
  • There are many factors driving NVDA stock higher.  An important factor driving NVDA higher is the market mechanic of gamma squeeze.  If you own NVDA stock or want to own NVDA stock, you should strive to understand gamma squeeze in NVDA.  The easiest way is to listen to the podcast titled “MARKET MECHANICS: IMPACT OF DEALERS’ GAMMA POSITION CHANGE ON THE STOCK MARKET
  • There are two pieces of news that are noteworthy for investors.
    • Hackers claim that they have breached Apple’s (AAPL) source code.  If true, it would sully Apple’s image of invisibility.
    • Elon Musk says that Dell is assembling half of the racks for the super computer being built by xAI.
  • Initial jobless claims came at 238K vs. 237K consensus.  We have previously emphasized the importance of looking at the four week moving average.  The four week moving average is rising, indicating that the jobs picture is beginning to weaken. 
  • 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.

Housing

Housing data is weaker than expected.  Here are the details:

  • Housing starts came at 1.277M vs. 1.385M consensus.
  • Building permits came at 1.386M vs. 1.455M consensus.

England

The Bank of England (BoE) has decided to hold rates steady.  The vote was seven to two.  BoE is showing a dovish tilt.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Meta (META) and NVDA.

In the early trade, money flows are neutral in Amazon (AMZN), Alphabet (GOOG), Microsoft (MSFT), and Tesla (TSLA).

In the early trade, money flows are negative in AAPL.

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 *** 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.

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. The post holiday buying is being met with selling in bitcoin.

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 $2352, silver futures are at $30.17, and oil futures are at $81.25.

S&P 500 futures are trading at 5571 as of this writing.  S&P 500 futures resistance levels are 5622 and 5748: support levels are 5500, 5400, and 5256.

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DJIA futures are down 31 points.

 

PRUDENT INVESTORS PAY ATTENTION TO CANARY IN COAL MINE – OBLIVIOUS MOMO CROWD SUPPORTING THE MARKET

Jun 18, 2024

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

Canary In The Coal Mine

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 continues to move higher.
  • On SPY, $550 is the magnet for short term traders.
  • The chart shows that the market is now significantly above the support zone.  This illustrates that in the middle of the AI buying frenzy, if the momentum turns down, the momo crowd that is buying aggressively now can quickly incur substantial losses.
  • The chart shows that the volume continues to be low, indicating a lack of conviction in the momentum driven rally concentrated in AI stocks.
  • RSI on the chart shows that the stock market is very overbought.  Overbought markets tend to be vulnerable to pullbacks.
  • The market can continue to go higher on momentum, but for the longer term, this momentum will be sustainable only if the following occurs:
    • The Fed aggressively starts cutting rates.
    • AI driven productivity rises faster than The Arora Report currently projects.
  • The Arora Report has been sharing with you for a while that the consumer, especially at the low end, has spent most of the liquidity they gained from free money and other government programs.   We have also been sharing with you that the call on the low end consumer should start showing up in the data.  The just released retail sales data shows that The Arora Report calls have been spot on.
  • Prudent investors pay attention to retail sales.  The reason is that the U.S. economy is 70% consumer based.  Retail sales are a good indication of how the consumer is doing.  Here are details of the just released data:
    • Headline retail sales came at 0.1% vs. 0.3% consensus.
    • Retail sales ex-auto came at -0.1% vs. 0.2% consensus.
  • The momo crowd is oblivious and continues to aggressively buy AI stocks.
  • If it was not for the obliviousness of the momo crowd, the stock market would have dropped significantly on the weak retail sales data. The reason is that the momo crowd is taking for granted that there will be no landing.  Even smart analysts are lock, stock, and barrel investing based on a soft landing.  Retail sales are like a canary in a coal mine.
  • In noteworthy news, Fisker (FSRN), once an EV favorite of the mom crowd,  has filed bankruptcy.  The lesson for investors is that it is fine to do short term trades based on momentum, but good investments require 360 degree analysis.  Maximize risk adjusted returns by following an unbiased system with a long, proven track record such as ZYX Change Method.
  • 20-year Treasury auction results will be announced at 1pm ET and may move the 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.

Magnificent Seven Money Flows

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

In the early trade, money flows are neutral in Meta (META).

In the early trade, money flows are negative in Amazon (AMZN) and Alphabet (GOOG).

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 *** 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.

Gold

The momo crowd is *** in 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.

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 down, and bonds are ticking up.

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 $2328, silver futures are at $29.12, and oil futures are at $79.69.

S&P 500 futures are trading at 5546  as of this writing.  S&P 500 futures resistance levels are 5622 and 5748 : support levels are 5500, 5400, and 5256.

DJIA futures are down 24 points.

 

NVIDIA DRIVING STOCK MARKET RALLY, AVERAGE STOCK IS A DIFFERENT STORY, AI COPPER TRADE HURTING

Jun 17, 2024

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

Pay Attention To The Average Stock

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 SPY compared to SPY Equal Weight ETF (RSP) and Nvidia stock (NVDA).  SPY is cap weighted.
  • The chart shows that SPY has gained 2.6% over the last 30 days while RSP has lost 2.45%.
  • The chart shows that NVDA has gained 39.76% during the same period.
  • Make no mistake, it is an NVDA rally, taking along other AI stocks.  However, the average stock is doing poorly.
  • History teaches that it is not prudent to become overly aggressive when the average stock is doing poorly.  
  • Members of The Arora Report are long NVDA stock from $12.55.  The Arora target is $163 –  $172.
  • The Arora Report was bullish on AI and NVDA before almost anyone else.  Having said that, an important data point is that the most often asked question we get now is from investors wanting to jump on the bandwagon and buy NVDA stock now.  Based on the history of the questions we have received over a long time, this indicates extreme bullish sentiment on NVDA stock.  Consider the following:
    • Extreme bullish sentiment is a contrary signal.  It is worth a reminder that sentiment is not a precise timing indicator.
    • Analysts who have been bullish on NVDA stock from much lower prices are not recommending jumping on the NVDA bandwagon now.
    • Analysts who totally missed NVDA’s rise are now jumping in, recommending their followers to go all in on NVDA.
    • The recent rise in NVDA is mostly driven by retail investors.
    • Historically, retail investors tend to be wrong at turning points.
    • Technically NVDA is very overbought.
  • Investors should remember two historical factors:
    •  Analysts are expecting NVDA to grow 70% per year over the next five years.  This is something that no large cap U.S. stock has ever accomplished in the entire market history.
    • Out of the ten most popular stocks in 1988 that retail investors were rushing headlong to buy, eight no longer exist. The only two that still exist are IBM and GE.
  • Prudent investors who do not already own NVDA stock may consider buying on a dip in the buy zone or when the Buy Now rating turns to yes.
  • The Fed’s Kashkari said that the Fed can take its time before cutting rates.
  • More Fed speak is ahead that may be market moving.
  • The U.S. economy is 70% consumer based.  Therefore, prudent investors pay attention to retail sales.  All important retail sales data will be released tomorrow at 8:30am ET.
  • 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.
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Red Hot Copper Trade

The AI driven red hot copper trade is getting hurt on data from China.  Here are the two pieces of data from China that are hurting copper:

  • House prices declined by 3.9% year-over-year.
  • Industrial production grew by 5.6% year-over-year vs. 6.2% consensus.

Europe

There were early gains in Europe as investors bought on Marine Le Pen’s statement that she would cooperate with President Macron and respect political institutions.  However, the rally was met with selling, causing gains to mostly disappear

Magnificent Seven Money Flows

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

In the early trade, money flows are neutral in Microsoft (MSFT) and Tesla (TSLA).

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

In the early trade, money flows are negative in S&P 500 ETF (SPY) and positive in Nasdaq 100 ETF (QQQ).

Momo Crowd And Smart Money In Stocks

The momo crowd is *** 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.

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 seeing slight selling in the early trade.

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 $2334, silver futures are at $29.43, and oil futures are at $78.33.

S&P 500 futures are trading at 5430 as of this writing.  S&P 500 futures resistance levels are 5500 and 5622: support levels are  5400, 5256, and 5210.

DJIA futures are down 106 points.

 

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Picture of Nigam Arora

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.

Picture of Dr. Natasha Arora

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.

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