MOST IMPORTANT EARNINGS REPORT FOR THIS AI DRIVEN MARKET AHEAD, TREASURY FUNDING OPTIMISM

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By Nigam Arora & Dr. Natasha Arora

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

AI Driven Market

Please click here for a chart of Microsoft stock (MSFT).

Note the following:

  • The Morning Capsule is about the big picture, not an individual stock.  The chart of MSFT stock is being used to illustrate the point.
  • The chart shows that MSFT stock has continued to move higher after breaking out above the support zone.
  • The chart shows that MSFT stock is continuing its run going into earnings.
  • The chart shows that MSFT stock is overbought.
  • A great indication for the entire stock market will be how MSFT stock chart looks after the earnings report.
  • Microsoft earnings is the most important earnings report this season.
    • Microsoft will report earnings after the close today.
    • Microsoft is in the lead to capture profits from artificial intelligence.  It has millions of captive customers. At $30 per customer per month for Microsoft Copilot, there is potential of a huge revenue increase.
    • In The Arora Report analysis, Microsoft can run Copilot at less cost than anybody else.  The Arora Report estimate is that Microsoft will generate over 50% gross profits on Copilot.  For more details, listen to the podcast on how Microsoft is likely to monetize AI in Arora Ambassador Club. 
    • At The Arora Report, we will be focused on two aspects of the earnings.
      • How is Microsoft actually monetizing AI
      • Cloud revenue growth
    • Whisper numbers for Microsoft earnings are significantly higher than the consensus numbers.  Stocks move based on the difference between whisper numbers and actual numbers.  Whisper numbers are the numbers that analysts share privately with their best clients and are often different from the numbers the same analysts publish.
  • A fortune in AI is to be made over the next six years.  However, it will not be a straight line and at times, it will be treacherous.  It is important for investors to develop deeper knowledge of various aspects of profiting from AI.  The easiest way to build your knowledge is by listening to the podcasts in Arora Ambassador Club.
  • Long time members of The Arora Report have huge unrealized gains on MSFT.  MSFT is in the ZYX Buy Model Portfolio.
  • UPS (UPS) is a bellwether stock as its earnings indicate strength or weakness in the economy.  This morning UPS reported earnings significantly worse than the whisper numbers.  This has negative implications for the economy.
  • In the early trade, the momo crowd was aggressively buying stock futures before the release of UPS earnings.   UPS earnings have brought selling into the entire 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.   Please scroll down to see the protection band.
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Real Or Political

Investors are excited about the announcement of the U.S. Treasury’s borrowing needs.  The U.S. Treasury has announced that it plans to borrow $760B in Q1.  This amount is $55B less than the consensus. The Treasury Department will announce details of the borrowing on Wednesday.

In The Arora Report analysis, the U.S. Treasury borrowing less does not jive with the planned government spending.  Could it be a ploy to shore up the stock and bond markets leading into the election this year?

Prudent, long term investors need to be very careful in this election year as Biden and his allies are going to do everything they can to get on the public’s good side to win the election.  Such moves are not sustainable in the next year.

The Arora Report plan is to take advantage of Biden’s moves to steadily book profits.

Layoffs And Work From Home

UPS is laying off 12,000 employees.

IBM is warning employees if they do not show up at the office, they will lose their jobs.

Magnificent Seven Money Flows

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

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

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

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

Gold is seeing buying on potential escalation in the Middle East.  

The momo crowd is *** gold in the early trade.  Smart money is *** in the early trade.

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For longer-term, please see gold and silver ratings.

Oil

For this time of the year, crude inventories at Cushing are at their lowest level in a decade.  This is a set up for a short squeeze.  A signal may be given to buy crude oil in ZYX Buy.  

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 move higher along with speculative junk stocks on positive risk sentiment.

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 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 $2061, silver futures are at $23.38, and oil futures are at $76.62.

S&P 500 futures are trading at 4943 as of this writing.  S&P 500 futures resistance levels are 5020, 5210, and 5400: support levels are 4918, 4852, and 4826.

DJIA futures are down 58 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.

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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.

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This post was just published on ZYX Buy Change Alert.

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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.

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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