By Nigam Arora
To gain an edge, this is what you need to know today.
PPI Spikes
Please click here for a chart of Taiwan Semiconductor Manufacturing Company stock (TSM).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of TSM stock is being used to illustrate the point. TSM manufactures cutting edge AI chips for the likes of Nvidia (NVDA) and Advanced Micro Devices (AMD).
- The chart shows TSM stock is falling after reporting record earnings.
- The chart shows TSM stock has fallen well below the low band of zone 1 (resistance).
- The chart shows TSM stock is well above the high band of zone 2 (support).
- RSI on the chart shows TSM is now oversold.
- The fact that TSM is falling after reporting record earnings is another data point showing The Arora Report’s call that in this phase of AI the character of the stock market is changing has proven spot on.
- Here are the details of TSM earnings:
- For Q3, earnings came at $4.60 vs. $4.46 consensus.
- For Q3, revenues came at $46.72B vs. $45.67B consensus. This is a 41.1% year-over-year rise.
- For Q4, TSM is guiding revenue of $52.3B – $54.3B vs. $50.22B consensus.
- Anthropic is one of a handful of top companies that are driving AI. Anthropic made financial disclosures yesterday at its investor day ahead of its planned IPO. Here are the key points:
- Q3 revenue was $16.8B, up from $11.6B in the Q2 and $4.7B in Q1.
- Q3 revenue translates to an annualized $67.2B based on average quarterly revenue.
- Anthropic reported positive free cash flow, an adjusted gross margin of 85%, and an adjusted operating margin exceeding 11%.
- Anthropic is targeting an IPO valuation exceeding $2T.
- Here is The Arora Report analysis of Anthropic’s financial disclosures:
- Revenue growth slowed sharply to 45% in the Q3 from approximately 147% in the Q2. The important point is not that Anthropic’s revenue growth is weak. Growing revenue 45% in a quarter is extraordinary, especially at this scale. The issue is that growth is slowing at a time when investor expectations are extremely high.
- Earlier expectations were for Anthropic to exceed a $100B annualized revenue run rate by year end, with some investors projecting $120B. The latest disclosures have raised questions about those expectations, though some analysts still project a year end run rate of over $100B.
- To reach a $100B annualized run rate by December, Anthropic would need monthly revenue of approximately $8.3B, compared with average monthly revenue of $5.6B in Q3.
- The bigger issue for the stock market is the disconnect between AI growth and the expectations already built into stock prices. AI demand remains strong, but slowing growth at major AI model developers raises questions about the returns on the massive investments being made by hyperscalers and AI infrastructure companies.
- The stock of neocloud company CoreWeave (CRWV) has seen panic selling. The reason is CoreWeave is heavily indebted. The yield on CoreWeave’s 9.652% debt maturing in 2032 rose to 15% in panic selling. CRWV dragged down the stocks of Oracle (ORCL), Nebius (NBIS), and IREN (IREN).
- As a member of The Arora Report, you have been ahead of the curve for months. We have been sharing with you that the character of the AI driven stock market is changing. Now, Wall Street is catching up. As an actionable item, The Arora Report members have already been positioned correctly with the Arora Protection Band as the combination of adaptive ZYX Asset Allocation Model with inputs in ten categories and the ZYX Change Method correctly anticipated well in advance what is happening now.
- It is increasingly important for investors to build their knowledge of this new phase of AI and how it is different from the prior phase. Risks are rising, but there are also great opportunities ahead, especially in physical AI. The best way to increase your knowledge is to listen to the podcast series titled “The Next Phase Of AI” in Arora Ambassador Club.
- Ukraine has resumed strikes on Russian refineries even though President Trump declared an energy ceasefire. Prudent investors should carefully watch the consequences of Ukrainian President Zelensky defying President Trump. President Trump is wanting to import diesel from Russia to reduce the price of diesel ahead of the midterm elections. Ukraine bombing Russian refineries brings into question Russia’s ability to provide the diesel President Trump wants.
- Producer Price Index (PPI) came hotter than expected. Here are the details:
- Headline PPI came at 1.3% vs. 0.5% consensus.
- Core PPI came at 0.7% vs. 03% consensus.
- Prudent investors closely watch retail sales data as the U.S. economy is 70% consumer based. Retail sales are hotter than expected. Here is the latest retail sales data:
- September headline retail sales came at 0.8% vs. 0.3% consensus.
- September retail sales ex-auto came at 0.9% vs. 0.3% consensus.
- Initial jobless claims came at 199K vs. 200K consensus.
- Normally, the foregoing economic data would have caused yields to rise and bonds to fall. However, today yields are falling and bonds are rising. In The Arora Report analysis, the reason for this behavior is that money is flowing out of AI stocks and into bonds.
- 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 Apple (AAPL).
In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), Nvidia (NVDA), Microsoft (MSFT), Meta (META), and Tesla (TSLA).
In the early trade, money flows are negative 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 *** gold in the early trade. This is reflected in gold ETF (GLD), silver ETF (SLV), gold miner ETF (GDX), and silver miner ETF (SIL). Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
API crude inventories came at a draw of 11.12M barrels vs. a consensus of a build of 1.9M barrels. This is bullish data for 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 selling.
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 7747 as of this writing. S&P 500 futures resistance levels are 7795, 7831, and 7900 : support levels are 7733, 7626, and 7541.
DJIA futures are up 194 points.
Gold futures are at $4167, silver futures are at $56.73, and oil futures are at $95.60.
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.
