By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Counterbalanced Crosscurrents
Please click here for a chart of Tesla stock (TSLA).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of TSLA stock is being used to illustrate the point.
- The chart shows that prior to the release of Tesla earnings, TSLA stock was approaching the top band of the support zone.
- After the close, Tesla reported blowout earnings.
- Tesla earnings are significantly better than the whisper numbers. Stocks move based on the difference between report numbers and whisper numbers. Whisper numbers are the numbers analysts provide privately to their best clients. These numbers are often different from the numbers the same analysts publish for public consumption.
- The most important number in Tesla earnings is ex-credits gross margin. Tesla handily beat the Street consensus of 15.1%. Tesla reported 17.1%.
- The chart shows that after the earnings TSLA stock is approaching the top band of the resistance zone.
- RSI on the chart shows TSLA stock going quickly from very oversold to very overbought. Historically, such thrust in RSI leads to a higher stock price.
- If the historical precedence holds and the overall stock market does not tank, the probability of TSLA stock reaching the top resistance zone shown on the chart is about 70%. There is a new buy signal on TSLA in ZYX Buy.
- Tesla CEO Elon Musk’s comments about robotaxi deployment are adding to the optimism. Musk’s comments about robotaxis are bringing in selling in Uber (UBER) and Lyft (LYFT).
- Nvidia (NVDA) is the most important stock for this market. Yesterday, due to rising yields, the NVDA breakout was failing.
- Tesla is one of the biggest customers of NVDA. Blowout earnings from TSLA are bringing in buying to NVDA stock. As of this writing in the premarket, NVDA has moved above the key $140 level.
- Markets always have crosscurrents. We have been sharing with you that yields are rising. In yesterday’s Morning Capsule we wrote,
Ten year Treasury yield has reached 4.24% as of this writing in the premarket. As we wrote yesterday, when the yield crosses 4.25%, it will start catching smart money’s attention. This is exactly what is happening today, and it is bringing selling into the stock market.
- Yesterday, the yield on 10 year Treasuries reached 4.258% at its high. This brought selling into the stock market.
- We have also been sharing with you in advance that for the stock market to sustain at this level earnings will have to be very robust. Tesla earnings are counterbalancing rising yields.
- 20 year Treasury bond reopening auction results are poor, indicating less demand than expected. Here are the details:
- $13B 20 year Treasury bond reopening
- High yield: 4.590% (When-Issued: 4.574%)
- Bid-to-cover: 2.59
- Indirect bid: 67.9%
- Direct bid: 17.6%
- Initial jobless claims came at 227K vs. 246K consensus. This indicates that the jobs picture is stronger than expected. This data is an additional data point that shows the Fed was overly aggressive when the Fed spiked the punch bowl with the 50 bps cut. Initial 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.
- 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
European stocks are seeing buying on better than expected manufacturing PMI.
- Flash Manufacturing PMI came at 45.9 vs. 45.1 consensus.
- Flash Services PMI came at 51.2 vs. 51.4 consensus.
Buying in European stocks is bringing positive sentiment to the U.S. stock market in the early trade.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Alphabet (GOOG), Microsoft (MSFT), Meta (META), NVDA, and TSLA.
In the early trade, money flows are neutral in Apple (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 *** (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.
Very Very Short-Term Indicator
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.
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 *** 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 seeing buying on positive sentiment created by Tesla earnings.
Markets
Interest rates are ticking down, and bonds are ticking up.
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.
S&P 500 futures are trading at 5864 as of this writing. S&P 500 futures resistance levels are 5926 and 6017: support levels are 5748, 5622, and 5500.
DJIA futures are down 54 points.
Gold futures are at $2752, silver futures are at $34.26, and oil futures are at $71.26.
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.
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.
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.