By Nigam Arora
To gain an edge, this is what you need to know today.
Tech Heavy Portfolios Hit
Please click here for a chart comparing Walmart (WMT), Hershey (HSY), Adobe (ADBE), and Salesforce (CRM) stocks.
Note the following:
- The chart shows year to date, stocks of retailer Walmart and chocolate maker Hershey have beaten popular tech stocks Adobe and Salesforce by a wide margin.
- HSY has beaten ADBE by 46.31%.
- WMT has beaten ADBE by 33.91%.
- HSY has beaten CRM by 49.89%.
- WMT has beaten CRM by 37.49%.
- Momo crowd portfolios are highly concentrated in speculative tech because the momo crowd is driven by hype that often surrounds speculative tech.
- The chart shows big gains in WMT and HSY stocks, but there is not much hype about Walmart and Hershey.
- Walmart is in the ZYX Buy Core Model Portfolio, long from $19.25. At its current price, this represents a gain of 568%. HSY is in ZYX Buy in the portfolio that surrounds the Core Model Portfolio.
- FOBO (Fear Of Becoming Obsolete) and not FOMO (Fear Of Missing Out) has hit many software stocks hard. Many momo crowd portfolios are as much as 60% in SaaS stocks that have been especially hard hit.
- Here are important lessons for investors:
- In the long run, what stocks and ETFs you do not own is as important as which stocks and ETFs you own.
- It is very important to systematically take partial profits when stocks and ETFs you own become overextended. Please see Trade Management Guidelines for how to properly systematically take partial profits.
- Using the technique of trade around positions dramatically increases rewards and reduces risks. Please see Trade Management Guidelines to learn the technique.
- Diversification is important. Momo crowd portfolios concentrated in speculative tech lost 95% -100% in 2000, 70% – 90% in 2008, and 70% – 90% in 2022.
- Portfolios need to be properly structured. For example, The Arora Report portfolios are tech heavy but very light on software.
- Investors need to look ahead and see how various stocks and sectors may perform and not get carried away by today’s hype.
- Prudent investors closely watch retail sales data as the U.S. economy is 70% consumer based. Retail sales are weaker than expected. Here is the latest retail sales data.
- October headline retail sales came at 0.0% vs. 0.4% consensus.
- October retail sales ex-auto came at 0.0% vs. 0.4% consensus.
- ADP data shows that the private sector added an average of 6,500 jobs per week over the four weeks ending January 24.
- Important economic data is ahead. The official jobs report will be released tomorrow at 8:30am ET. Initial jobless claims will be released on Thursday at 8:30am ET. Consumer Price Index (CPI) data will be released Friday at 8:30am ET.
- In important news Taiwan Semiconductor Manufacturing (TSM) had its highest monthly revenue ever in January with an increase of 37%. Revenue data from Taiwan Semiconductor Manufacturing is important for the AI trade because Taiwan Semiconductor Manufacturing manufactures advanced chips for Nvidia (NVDA), Advanced Micro Devices (AMD), and Apple (AAPL).
- In a sign of the times, with so much exuberance about AI, Google (GOOG, GOOGL) is issuing a 100 year bond. The last time a company issued a 100 year bond, it was Motorola in 1997. Tech stocks crashed in 2000. Prudent investors should note that not a single company that was in the Dow Jones Industrial Average (DJIA) in 1926 is still in DJIA today. The take home for investors from this observation is to not be overly aggressive with the amount of strategic positions held at this time. The time to be aggressive with strategic positions is when valuations are low, there is a bear market, investors hate stocks, or the momo crowd is disheartened – none of these are occurring today – this is the key to building extraordinary wealth in 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), 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 Apple (AAPL) 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 *** (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 buying 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 *** in 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 but trading below $70,000 as of this writing. This is disappointing to bitcoin bulls because they were expecting the psychological support at $70,000 to hold.
Markets
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.
S&P 500 futures are trading at 6979 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 down 27 points.
Gold futures are at $5074, silver futures are at $81.75, and oil futures are at $64.60.
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.
