TESLA HURT BY INTEREST RATES, BUYING OPPORTUNITY IN SEMICONDUCTORS, IMPORTANT POWELL SPEECH AHEAD

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By Nigam Arora & Dr. Natasha Arora

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

Opportunity In Semiconductors

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 is being used to illustrate the point.
  • TSLA is a very important stock because it is part of the magnificent seven.
  • The chart shows a big drop in TSLA stock on earnings.
  • The trendline on the chart shows that TSLA stock is in a downtrend.
  • Tesla has a good story in Cybertruck, FSD, lower cost than competitors, and energy business.  However, Tesla has been hurt by rising interest rates.  In the conference call, Musk mentioned interest rates 11 times.
  • In The Arora Report analysis, there is a readthrough for the economy from Tesla earnings.  After tax credits, Tesla cars are some of the cheapest cars in the U.S. now.  Under certain circumstances, after tax credits, a consumer can now buy a brand new Model 3 for $24,000 in California.  In spite of this advantage, Tesla is having difficulty.  This indicates that although consumer spending continues to be strong, the consumer is pulling back on high ticket purchases.
  • There is good news from Taiwan Semiconductor (TSM). Taiwan Semiconductor is important because it is the largest semiconductor foundry for advanced chips, including the CPU in your iPhone. Taiwan Semiconductor profits fell by 25%.  However, this is better than the consensus.  For the year ahead, TSM is predicting a drop in industry inventory levels.  When inventories go down, that is typically the bottom of the semiconductor cycle.  Historically, it pays to buy semiconductors when the cycle is bottoming.   Two ETFs, artificial intelligence ETF (AIQ) and semiconductor ETF (SMH), are of special interest in the ZYX Allocation Model Portfolio.  The portfolio is very overweight in semiconductors.  Together, these two ETFs can have an allocation up to 23%.  Investors need to keep in mind that there is no free lunch.  Semiconductors have a high beta.  In plain English, this means that they move a lot more than the market – to the upside and to the downside.  
  • Fed Chair Powell is speaking at the New York Economic Club at 12pm ET.  We will be carefully watching for clues regarding the monetary policy.  The consensus is that Powell will be dovish.  If Powell turns out to be dovish, expect the stock market to spike up.  On the other hand, if Powell is hawkish, there could be significant downside from here.
  • Prudent investors need to keep a close watch on 10-year Treasury yields.  They are trading at 4.925% as of this writing, close to the highest level since 2007.
  • Mortgage rates have now hit 8%.
  • Initial jobless claims came at 198K vs. 210K consensus. This indicates the job picture continues to be very strong.  Jobless claims are a leading indicator and carry 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 jobs picture is the strongest at the low end, but it continues to be weak in certain sectors such as information technology.  As an example, Nokia (NOK) is laying off 14,000 employees.
  • 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.
See also  META FALLS 15% ON GREAT EARNINGS, TESLA RISES 12% ON UGLY EARNINGS – HERE IS THE REAL REASON

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), and Meta (META).

In the early trade, money flows are neutral in Apple (AAPL).

In the early trade, money flows are negative in Tesla (TSLA).

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.

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 Biden administration is loosening restrictions on Venezuela to allow more Venezuelan oil on the market.  This is causing a drop in 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) continues to levitate on enthusiasm about a potential spot bitcoin ETF.

Markets

Our very, very short-term early stock market indicator will depend on what Powell says.  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.

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Gold futures are at $1967, silver futures are at $23.02, and oil futures are at $86.52.

S&P 500 futures are trading at 4350 as of this writing.  S&P 500 futures resistance levels are 4400, 4460, and 4600: support levels are 4318, 4200, and 4000.

DJIA futures are up 19 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.

See also  WEEKLY STOCK MARKET DIGEST: IS THE STOCK MARKET GETTING READY FOR A RUN UP?

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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This post was just published on ZYX Buy Change Alert.

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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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