Most Important Earnings Report For This AI Driven Market Ahead, Treasury Funding Optimism

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

AI Driven Market

Please see above for a chart of Microsoft Corp MSFT.

Note the following:

• The Morning Capsule is about the big picture, not an individual stock. The chart of MSFT stock is being used to illustrate the point.
• The chart shows that MSFT stock has continued to move higher after breaking out above the support zone.
• The chart shows that MSFT stock is continuing its run going into earnings.
• The chart shows that MSFT stock is overbought.
• A great indication for the entire stock market will be how MSFT stock chart looks after the earnings report.
• Microsoft earnings is the most important earnings report this season.
  • Microsoft will report earnings after the close today.
  • Microsoft is in the lead to capture profits from artificial intelligence. It has millions of captive customers. At $30 per customer per month for Microsoft Copilot, there is potential of a huge revenue increase.
  • In The Arora Report analysis, Microsoft can run Copilot at less cost than anybody else. The Arora Report estimate is that Microsoft will generate over 50% gross profits on Copilot.
  • At The Arora Report, we will be focused on two aspects of the earnings.
    • How is Microsoft actually monetizing AI
    • Cloud revenue growth
  • Whisper numbers for Microsoft earnings are significantly higher than the consensus numbers. Stocks move based on the difference between whisper numbers and actual numbers. Whisper numbers are the numbers that analysts share privately with their best clients and are often different from the numbers the same analysts publish.
• United Parcel Service, Inc. UPS is a bellwether stock as its earnings indicate strength or weakness in the economy. This morning UPS reported earnings significantly worse than the whisper numbers. This has negative implications for the economy.
• In the early trade, the momo crowd was aggressively buying stock futures before the release of UPS earnings. UPS earnings have brought selling into the entire 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.

Real Or Political

Investors are excited about the announcement of the U.S. Treasury’s borrowing needs. The U.S. Treasury has announced that it plans to borrow $760B in Q1. This amount is $55B less than the consensus. The Treasury Department will announce details of the borrowing on Wednesday.

In The Arora Report analysis, the U.S. Treasury borrowing less does not jive with the planned government spending. Could it be a ploy to shore up the stock and bond markets leading into the election this year?

Prudent, long term investors need to be very careful in this election year as Biden and his allies are going to do everything they can to get on the public’s good side to win the election. Such moves are not sustainable in the next year.

The Arora Report plan is to take advantage of Biden’s moves to steadily book profits.

Layoffs And Work From Home

UPS is laying off 12,000 employees.

IBM is warning employees if they do not show up at the office, they will lose their jobs.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Microsoft (MSFT), NVIDIA Corp NVDA, and Tesla Inc TSLA.

In the early trade, money flows are neutral in Alphabet Inc Class C GOOG and Meta Platforms Inc META.

In the early trade, money flows are negative in Apple Inc AAPL and Amazon.com, Inc. AMZN.

In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust Series 1 QQQ.

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade. Smart money is inactive in the early trade.

Gold

Gold is seeing buying on potential escalation in the Middle East.  

The momo crowd is aggressively buying gold in the early trade. Smart money is inactive in the early trade.

For longer-term, please see gold and silver ratings.

The most popular ETF for gold is SPDR Gold Trust GLD. The most popular ETF for silver is iShares Silver Trust SLV. 

Oil

For this time of the year, crude inventories at Cushing are at their lowest level in a decade. This is a set up for a short squeeze.  

The momo crowd is aggressively buying oil in the early trade. Smart money is inactive in the early trade.

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD continues to move higher along with speculative junk stocks on positive risk sentiment.

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 a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. 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.

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 seven 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.

The Arora Report is known for its accurate calls. The Arora Report correctly called the 2008 financial crash, the start of a mega bull market in 2009, the COVID crash, the post-COVID bull market, and the 2022 bear market. Please click here to sign up for a free forever Generate Wealth Newsletter.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.