By Nigam Arora
To gain an edge, this is what you need to know today.
$40 Trillion Debt
Please click here for a chart of Home Depot stock (HD).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of HD stock is being used to illustrate the point.
- The trendline on the chart shows HD stock has been in a downtrend. The reason has been persistently high interest rates.
- The chart shows HD stock is gapping up on earnings.
- Prudent investors should keep an eye if HD stock can break above the trendline shown on the chart. A break above the trendline will likely be a positive tell for the entire stock market. On the other hand, if the rally that is starting today fails, it will be a negative.
- Home Depot earnings are important because it is the largest home improvement retailer in the U.S. Its earnings give another important data point on the consumer picture. Consumers are important because the U.S. economy is 70% consumer based.
- Home Depot earnings are better than consensus and whisper numbers. Here are the details:
- Home Depot reported EPS of $4.92 vs. $4.73 consensus.
- Home Depot reported Q2 revenue of $47.86B vs. $47.24B consensus.
- Home Depot guides FY27 earnings of $14.69 – $15.28 vs. $14.94 consensus.
- Home Depot guides FY27 revenue of $168.8B – $172.1B vs. $170.94B consensus.
- Alarm bells are ringing about the U.S. national debt. Smart money is paying attention, but the stock market momo crowd is oblivious. U.S. national debt is quickly approaching $40T. Troubling to smart money are the following:
- U.S. leaders do not have a plan to contain the debt.
- U.S. leaders are talking about measures that will increase the debt growth.
- Yields are rising. As of this writing, the 10 year Treasury yield is 4.736%, and the 30 year Treasury yield is 5.315%. The 30 year yield is the highest since 2007.
- Prudent investors should note that it is not only the U.S. Yields are rising across the globe. There are two reasons:
- Rising debt across the globe
- Concern that oil prices will rise further as the U.S. and Iran are in a stalemate
- In The Arora Report analysis, the rally in the AI trade that was triggered by the collapse of the $45B Situational Awareness fund that lost 67% in July is showing first signs of exhaustion.
- Memory stocks such as Micron (MU), SK Hynix (SKHY), and Sandisk (SNDK) have had an explosive rally over the last few days triggered by Sandisk’s investor day. In the early trade, memory stocks are pulling back.
- 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.
Housing Starts
Rising interest rates are hurting housing. Here is the latest data:
- Housing starts came at 1.239M vs. 1.36M consensus.
- Building permits came at 1.443M vs. 1.39M consensus.
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) and Microsoft (MSFT).
In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), Meta (META), Nvidia (NVDA), 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 *** stocks 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 *** in 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
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 seeing buying.
Markets
Interest rates and bonds are range bound.
The dollar is range bound.
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 7732 as of this writing. S&P 500 futures resistance levels are 7900 and 8000 : support levels are 7700, 7318, and 7194.
DJIA futures are down 54 points.
Gold futures are at $4419, silver futures are at $65.30, and oil futures are at $84.35.
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.
