LARGEST EVER CHINESE RUSSIAN WARSHIP GROUP APPROACHED ALASKA, EARNINGS DROP, MEME STOCKS RESURGENT

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By Nigam Arora & Dr. Natasha Arora

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

Earnings Drop

Please click here for a chart of the trucking firm Yellow Corporation (YELL).  YELL is the latest meme stock.

Note the following:

  • The Morning Capsule is about the big picture, not an individual stock.  The chart of YELL is being used to illustrate the point.
  • The chart shows when it became clear that the bankruptcy of Yellow was imminent.
  • To most investors, bankruptcy is not good news, but the meme crowd is different.  The chart shows that the meme crowd aggressively bought YELL stock on the bankruptcy news.
  • The chart shows that the meme crowd ran up YELL stock by 861% in three days.
  • The news this morning is that Yellow has filed for bankruptcy.  How is the meme crowd responding to the news?  They are urging the crowd to double down and buy more YELL stock aggressively.
  • In The Arora Report analysis, without the meme crowd activity, YELL stock is worthless. 
  • It is very important right now for investors to track the sentiment.  The reason is that the stock market has risen on sentiment driven by the AI frenzy and Bidenomics while earnings have declined.
  • An important indication of sentiment is the activity of the meme crowd. The meme crowd is the crowd that copies trades based on social media and believes that their collective buying can run up the stocks.
  • The meme crowd often becomes resurgent when sentiment becomes very positive.
  • The meme crowd was surging during the pandemic.  Theater chain AMC and video game retailer GME were top meme crowd favorites.  The meme crowd ran up GME from about $1 to over $120 (outside regular trading hours), and now the stock has fallen back to $21.  The meme crowd also ran up AMC from the $2 range to $72, and now the stock has fallen back to under $5.
  • We previously shared with you:
  • As discussed in yesterday’s Morning Capsule and many other prior capsules, prudent inventors track sentiment.  Sentiment plays a major part in the moves in the stock market.

    • As an example, the stock market rally in 2023 is mostly based on positive sentiment driven by the AI frenzy, resulting in PE expansion.

  • The Arora Report members gain an edge with our proprietary sentiment indicator that is shared daily in the Afternoon Capsule.
  • Companies are playing well the age old game of trying to run up their stocks.
    • Companies guided analysts to lower their earnings projections to such an extent that the companies knew they would be able to beat the lower projections.
    • As is the pattern, Wall Street analysts obliged and lowered their estimates.  So far, 422 of the 500 S&P 500 companies have reported their earnings. 79% of the 422 companies have beaten the lower estimates.  It is not different than most quarters when the vast majority of the companies beat the estimates that they themselves had deliberately guided analysts to lower.
    • Nobody is talking about the simple fact that earnings this quarter are down by 5.2% over the same quarter last year. 
    • Even though earnings are down compared to the same quarter last year, the stock market is significantly higher.  
  • The mantra of the perma bulls is that this is the trough quarter of earnings.  Of course, perma bulls make this announcement every quarter in an attempt to run up the stock market.
  • 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.
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Audacious Move

Given the backdrop of Russia’s invasion of Ukraine and the potential Chinese invasion of Taiwan, China and Russia joined together to make an audacious move.  The largest ever warship group from the Chinese and Russian navies approached Alaska in a provocative move.  To counter Chinese and Russian moves, the U.S. sent four navy warships to the same waters.

This incident is a further reaffirmation that our prior major call is correct.  The major call is that the four megatrends that drove the 40 year secular bull market from 1982 to 2022 have ended.  One of the megatrends that has ended is lower defense spending, which helped stock markets throughout the world.  Going forward, the highest probability is of cyclical bull markets and cyclical bear markets.

For those who were not able to attend the event and want to understand in-depth as to how to proceed going forward, a recording of the event is available in Arora Ambassador Club.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), and Microsoft (MSFT).

In the early trade, money flows are negative in Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).

In the early trade, money flows are mixed in S&P 500 ETF SPY and positive in 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.

Gold

The momo crowd is 🔒 gold in the early trade.  Smart money is 🔒 in the early trade.

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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 range bound.

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 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.

Gold futures are at $1971, silver futures are at $23.56, and oil futures are at $82.16.

S&P 500 futures are trading at 4516 as of this writing.  S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.

DJIA futures are up 115 points.

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 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.

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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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Picture of 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.

Picture of 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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