TWO VERY DIFFERENT WARNINGS: ONE FROM CHINA AND ONE FROM TARGET

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By Nigam Arora & Dr. Natasha Arora

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

Target Warning

Please click here for a chart of Target (TGT).

Note the following:

  • The Morning Capsule is about the big picture and not individual stocks.  The chart of Target (TGT) is being used because it has an impact on the overall market.
  • It is very rare for a large company to warn twice in almost three weeks.
  • The chart shows the prior earnings warning from TGT and a new earnings warning.
  •  is stuck with inventory that nobody wants.
  •  is planning a fire sale to get rid of the inventory that nobody wants.
  •  expects its second quarter operating margin will be around 2%.
  • TGT is being optimistic for the second half – it expects an operating margin of about 6%, higher than the pre-pandemic level.
  • TGT expects to maintain or gain market share.
  • You may recall that we have previously pointed out several times that the wrong kind of inventory would become a problem.  Now, that is exactly what is happening.  The inventory problem is not only limited to TGT but is industry wide.
  • The warning from TGT is impacting the overall market in the early trade.

A Dire Warning From China

A top economist who works for a research group overseen by China’s economic planning agency is suggesting that China should seize Taiwan Semiconductor (TSM) if the US imposes sanctions on China similar to those imposed on Russia.  Here are the key points:

  • The person issuing the warning is Chen Wenling.  He is the chief economist at China’s Center for International Economic Exchanges. He is an influential person.
  • China is very different from the US.  In all likelihood, the warning is approved by the Chinese government, and this is a low key way for the Chinese government to warn the US government.
  •  is the largest contract semiconductor manufacturer in the world.
  •  has more than 50% market share of the foundry market.
  • To understand the importance of TSM, consider that the chips in your iPhone are made by TSM.  If China were to seize TSM, China could stop the supply of chips to Apple (AAPL) and  would not be able to produce iPhones.
  • Since  is a large part of many portfolios, it is important for investors to understand the risks to AAPL.  Such risks are drastically underestimated.  More importantly, Wall Street firms stay silent on the issue because Wall Street firms do a lot of business in China and with AAPL.  Please review the risk reward matrix in the Model Portfolio in ZYX Buy.  Also, consider listening to the in depth podcast on  titled “Stagflation: Buffett’s Portfolio Part 3.”
  • The China Taiwan risk is not discounted in the current stock market price.

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 🔒 stocks 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 momo crowd is 🔒 oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin failed to break above $32,000.  The disappointment has caused heavy selling, and now bitcoin is below the psychological level of $30,000.

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 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.

Gold futures are at $1846, silver futures are at $21.94, and oil futures are $117.91.

S&P 500 futures resistance levels are 4200, 4318 and 4400: support levels are 4000, 3950 and 3860.

 futures are down 282 points.

Protection Bands And What To Do Now?

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold 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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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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