By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
How Smart Money Invests
Please click here for a chart of SoundHound AI (SOUN).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of SOUN stock is being used to illustrate the point.
- SoundHound makes conversational intelligence and voice AI technologies that allow hands free interactions for businesses across many industries, including restaurants.
- The chart illustrates how smart money invests and how the momo crowd often becomes the bag holder.
- In the case of SOUN stock, smart money is Nvidia (NVDA). Nvidia bought SOUN stock, presumably around $2.13 per share in late 2023.
- The chart shows when SOUN stock became one of the most popular momo crowd stocks.
- The chart shows the momo crowd aggressively bought SOUN, rapidly running up the stock.
- The volume on the chart shows how aggressive the buying was.
- Nvidia took advantage of the momo crowd buying and presumably sold near the highs shown on the chart.
- The chart shows that after momo crowd buying was exhausted, the stock started drifting down. The chart shows when the news broke that Nvidia had already sold SOUN stock. The chart shows a gap down.
- This also illustrates why investors need to get ahead of the news. The news that the momo crowd relies on about smart money buying and selling is often delayed by months.
- In The Arora Report analysis, due to the latest developments in AI, the system from SoundHound is likely falling behind the state of the art. Presumably, this was the reason for Nvidia selling, in addition to taking advantage of the strength created by momo crowd buying.
- Prudent investors should note, there are a large number of popular stocks in this market that have run up on momo crowd buying. The day of reckoning for such stocks is ahead.
- In the early trade, stocks are being bought on Ukraine peace talks between the U.S. and Russia. Prudent investors should note that Ukraine and Europe have been left out of these talks. S&P 500 is breaking above the prior micro resistance zone in the early trade and heading towards a new high.
- 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.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Alphabet (GOOG), Microsoft (MSFT), Tesla (TSLA), and NVDA.
In the early trade, money flows are neutral in Apple (AAPL) and Meta (META).
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) buying 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 *** buying gold in the early trade. Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
OPEC+ is considering delaying oil production increase due to Trump wanting to produce more oil in the U.S. This is bringing buying into 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) is range bound.
Markets
Interest rates are ticking up, and bonds are ticking down.
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.
S&P 500 futures are trading at 6156 as of this writing. S&P 500 futures resistance levels are 6256, 6500, and 6700: support levels are 6131, 6017, and 5926
DJIA futures are up 39 points.
Gold futures are at $2933, silver futures are at $33.06, and oil futures are at $71.13.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror. The proprietary protection band from The Arora Report is very popular. The 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.
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.
