By Nigam Arora
To gain an edge, this is what you need to know today.
Major Development
Please click here for a chart of Halliburton stock (HAL).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of HAL stock is being used to illustrate the point.
- President Trump has extracted Venezuelan President Maduro by force. Maduro is being produced in front of a court in New York. President Trump has said that the U.S. will run Venezuela and invest billions in oil.
- Venezuela has the world’s largest oil reserves of roughly 303B barrels of crude oil.
- A major beneficiary of developments in Venezuela is oil service company Halliburton. HAL is in the ZYX Buy Core Model Portfolio.
- The chart shows the gap up in HAL stock in the early trade on the prospects of Halliburton getting significant business in Venezuela.
- The chart shows that HAL is now overbought. Overbought stocks are vulnerable to pullbacks.
- Here are other winners from developments in Venezuela:
- Chevron (CVX) is the only major U.S. oil company operating in Venezuela and controls about 25% of Venezuela’s oil production.
- ConocoPhillips (COP) has about $10B in claims against Venezuela that may be worth about $20B including interest and fees.
- SLB (SLB) is a major oil service company.
- Valero Energy (VLO) and PBF Energy (PBF) are two refiners that will benefit from an increase of availability of Venezuelan heavy crude oil.
- Those looking for higher reward situations may look at two microcaps:
- Rusoro Mining Limited (RMLFF) has gold mining properties in Venezuela. It owns 95% of Choco 10 mine and 50% of Isidora mine.
- Gold Reserve Limited (GDRZF) is a Bermuda company that has been involved in gold and copper mining in Venezuela and has claims against Venezuela for expropriation. Gold Reserve, at present, has no active mining operations in Venezuela.
- Those interested in ETFs may look at oil services ETF (OIH). OIH is in the ZYX Allocation Model Portfolio.
- All of the foregoing stocks and the ETF are gapping up as of this writing in the premarket. Momo crowd buying is very aggressive.
- Unlike the momo crowd, prudent investors should control the FOMO (fear of missing out) emotion. Prudent investors should focus on signals when they are given by the proven ZYX Change Method with a long track record. Prudent investors should also consider buying in the Arora buy zones and also have access to proper position sizes, stop zones, and target zones. New signals will be given as appropriate.
- In The Arora Report analysis, here are the key points prudent investors should consider that the momo crowd is ignoring:
- Years of leftist rule have left oil infrastructure in Venezuela in shambles.
- Venezuela is producing significantly less oil now than it was producing 10 years ago.
- It will take tens of billions of dollars of investment and a long time to bring Venezuelan oil back to full production. Expect the momo crowd that is buying today to be disappointed because there will not be a quick increase in oil production.
- So far, there has not been significant resistance in Venezuela, but that does not mean that resistance will not emerge.
- The U.S. has now given presidential powers to Venezuelan Vice President Rodríguez, who has been an anti-U.S. crusader all her life.
- Prudent investors should be especially careful to not fall prey to the highly flawed analysis propagated by momo gurus. Momo gurus are multiplying 303B barrels by $57 per barrel to come up with $17.3T, then they are extrapolating that even if the U.S. gets 50% of it, the U.S. just got $8.7T. Nothing could be farther from the truth than this flawed analysis. In The Arora Report analysis, Venezuelan oil is highly viscous heavy crude that is high in sulfur. It is expensive to extract. In the end, the margin for oil companies may only be $5 – $7 per barrel. Further, it is not that 300 barrels are sitting in a warehouse. The oil is in the ground, and some of it may be very challenging to extract.
- There are also many losers from the Venezuela development. Two notable losers are Canadian oil companies Suncor Energy (SU) and Canadian Natural Resources (CNQ). It may be easier to make money from the short side. Short selling signals will be in ZYX Short.
- In The Arora Report analysis, the big win for the U.S. is that Venezuela will no longer be selling oil to China in yuans. For the dollar to stay king, it is important for oil to continue trading in dollars. China has been working hard to topple the king dollar. China had made great progress towards its goal by persuading Venezuela to sell oil in yuans.
- In The Arora Report analysis, China is the big loser here in the short term. Tensions between the U.S. and China may increase. Here are the beneficiaries:
- Intel (INTC) is a beneficiary because of its U.S. based foundries.
- Rare earth miners such as MP Materials (MP), USA Rare Earth (USAR), and Critical Metals (CRML) are also beneficiaries.
- Investors should be mindful of crosscurrents that always exist in the markets. For example, Taiwan Semiconductor Manufacturing stock (TSM) would have been down this morning on the Venezuela news, but instead it is up because a major Wall Street bank increased its target by 35%.
- There is jubilation in China as many in the Chinese media are claiming that the U.S. has just handed a blueprint to China to capture Taiwan. The momo crowd is oblivious.
- Gold and silver are the winners in the short term from the Venezuela situation. However prudent investors should be aware that Venezuela’s central bank holds 161 tonnes of gold. Further, 31 tonnes of Venezuelan gold is being held in the Bank of England’s vaults and is tied up in litigation. If some of Venezuela’s gold is sold, it can potentially cause a major dip in gold and silver.
- What has happened in Venezuela is a major development. Prudent investors should take time to fully grasp its implications in the short term and long term. Be careful as the media is full of highly flawed analysis driven by agendas that are not in investors’ best interest. The easiest and best way to build your knowledge is to listen to the podcast in Arora Ambassador Club titled “WHY POPULAR VENEZUELA ANALYSIS IS WRONG – WHAT INVESTORS SHOULD DO.” To get on the waitlist to join Arora Ambassador Club, please click here to fill out the form.
- Both Nvidia (NVDA) and Advanced Micro Devices (AMD) CEOs are giving keynote speeches at CES. Historically, these speeches have run up not only NVDA and AMD stocks but all AI stocks. Wall Street is front running, buying AI stocks in the hope of selling them to retail investors at higher prices.
- ISM Manufacturing Index will be released at 10am ET and may be market moving.
- Friday will see the first jobs report not impacted by the government shutdown.
- 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 Amazon (AMZN), Alphabet (GOOG), Nvidia (NVDA), and Tesla (TSLA).
In the early trade, money flows are neutral in Microsoft (MSFT) and Meta (META).
In the early trade, money flows are negative in Apple (AAPL).
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) 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. Smart money is *** in the early trade.
For longer-term, please see gold and silver ratings.
Oil
OPEC+ decided to leave production unchanged.
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 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 6915 as of this writing. S&P 500 futures resistance levels are 7000 and 7200 : support levels are 6780, 6500, and 6256.
DJIA futures are down 3 points.
Gold futures are at $4423, silver futures are at $75.17, and oil futures are at $57.85.
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.
