By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
Cash Is Not Trash
Please click here for a chart of Warren Buffett’s company Berkshire Hathaway stock (BRK.B).
Note the following:
- The Morning Capsule is about the big picture, not an individual stock. The chart of BRK.B is being used to illustrate the point.
- Warren Buffett is one of the best investors. Prudent investors should pay attention to his actions.
- The chart shows BRK.B stock has pulled back to the top of the mini support zone.
- The chart shows that BRK.B stock has experienced a decent pullback from the resistance zone.
- At a time when the stock market is near an all time high and the momo crowd is not only fully invested but is also nearly fully margined, Berkshire Hathaway’s cash pile hits a record high of $325B. Clearly, Warren Buffett is not listening to momo gurus who have convinced their followers that cash is trash.
- Buffett did not buy back any BRK.B stock in the third quarter. In The Arora Report analysis, this indicates that Buffett thinks the stock is too expensive. Investors have been running up BRK.B stock not on fundamentals but on sentiment.
- Berkshire Hathaway cut its stake in Apple (AAPL) by 25%. Instead of buying AAPL stock, Buffett has chosen to reduce the position and pay billions of dollars in taxes. Clearly, Buffett is not persuaded that Apple’s efforts in AI are about to deliver big results.
- In The Arora Report analysis, Buffett is likely looking at the valuation of Apple and the China risk.
- AAPL stock is trading at a forward PE of approximately 30. The 10 year average PE is 20.
- About 20% of Apple’s sales come from China. If Trump is elected, there is a fair probability that Apple may become a pawn in geopolitical maneuvers.
- At The Arora Report, we understand and acknowledge that investors love AAPL stock. Before sending hate mail for not writing positively about Apple in this Morning Capsule, keep in mind two facts:
- Buffett has praised Apple, but due to slowing growth and the high valuation, Buffett is being prudent.
- The Arora Report’s recommendation of AAPL stock has an average price of $4.68. AAPL is trading at $221.40 as of this writing in the premarket. This represents a gain of 4631%. Due to the large unrealized gain, AAPL is a very large position in the ZYX Buy Model Portfolio. Investors may want to pay attention to the risk reward matrix in ZYX Buy regarding the present status of AAPL.
- Nvidia holders are celebrating. Nvidia (NVDA) will be added to the Dow Jones Industrial Average (DJIA) on November 8, and Intel (INTC) will be removed. Also being added is paint maker Sherwin-Williams (SHW) and Dow (DOW). Investors should note the following:
- On the average, a stock loses about 4.8% one year after being added to DJIA.
- Very little money is tied to DJIA in a passive manner. As such, these additions and deletions do not have the same impact as additions and deletions to S&P 500.
- Typically, only the momo crowd buys on additions to DJIA.
- We understand that just like AAPL, investors love NVDA. Before sending us hate mail for not writing positively about Nvidia in this Morning Capsule, keep in mind that The Arora Report’s recommendation of NVDA has an average price of $12.55. NVDA stock is trading at $137.35 as of this writing in the premarket, representing a gain of 994%. NVDA is in the ZYX Buy Model Portfolio. The latest podcast in Arora Ambassador Club addresses Nvidia, among other stocks.
- The Trump trade is pulling back on recent polling data indicating Harris could take Iowa, traditionally a red state. Investors should remember to separate their politics from their investing to maximize returns.
- 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 Nvidia (NVDA).
In the early trade, money flows are neutral in Microsoft (MSFT).
In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), Meta (META), Tesla (TSLA), and AAPL.
In the early trade, money flows are neutral 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.
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 dollar is being sold as the Trump trade pulls back. Since gold is priced in dollars, this is leading to a higher gold price.
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
Oil is moving up for two reasons:
- Iran is talking about retaliation against Israel.
- OPEC+ has pushed back its December production increase.
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 selling as bitcoin is part of the Trump trade.
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 5759 as of this writing. S&P 500 futures resistance levels are 5926 and 6017: support levels are 5748, 5622, and 5500.
DJIA futures are down 51 points.
Gold futures are at $2757, silver futures are at $32.95, and oil futures are at $71.42.
Protection Band And What To Do Now
It is important for investors to look ahead and not in the rearview mirror.
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.
