AMD Earnings Show Power Of Nvidia Software, ADP Data Defies Expectations

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

Strong ADP Data

Please click here for an enlarged chart of Advanced Micro Devices, Inc. AMD.

Note the following:

• This article is about the big picture, not an individual stock. The chart of AMD stock is being used to illustrate the point.
• The chart shows the momo crowd buying AMD stock yesterday ahead of the earnings release.
• The chart shows when earnings were released.
• The chart shows the drop in AMD stock after earnings.
• The chart shows the proprietary Arora Report VUD indicator changed to orange when earnings were released and continues to be orange today in the premarket.  This indicates a net supply of AMD stock.
• AMD reported earnings inline with the consensus and provided decent guidance.  Why did the stock fall?  The reason is that the whisper numbers for AI GPU guidance were approaching $6B.  AMD guided above $5B for 2024 – this was inline with consensus.  As we have been sharing with you, stocks move based on the difference between reported numbers and whisper numbers.
• The reason that AMD was not able to meet the whisper numbers is that even though AMD chips for AI are excellent, AMD does not have the software and the whole system like NVIDIA Corp NVDA.  This limits AMD's market even though AMD is offering cheaper price points compared to Nvidia.  AMD has recently bought a systems company in an attempt to catch up to NVDA.  However, in The Arora Report analysis, it will take a long time for AMD to catch up with NVDA.  Nvidia's CUDA is a parallel computing platform and programming model.  Thousands of developers have been using CUDA to harness the power of AI for years.
• Alphabet Inc Class C GOOG reported earnings yesterday after the close.  Alphabet earnings show data center growth.  Data center growth means AI growth.  However, in The Arora Report analysis, there is risk in GOOG stock because Google has over 90% of the search market.  It is hard to see Google gaining share from here.  Even a drop of a few percentage points will substantially hit earnings.
• Microsoft Corp MSFT and Meta Platforms Inc META earnings are ahead after the close.  In The Arora Report analysis, stocks will move based not only on the earnings but how well the companies are able to monetize AI.
• The Arora Report shared early on that AI was real and a fortune was to be made from AI.  We have also been sharing with you that it is important to develop deep knowledge because at times it will be treacherous.  We have illustrated the treacherousness of following the momo crowd in AI with the example of Super Micro Computer Inc SMCI.  When everyone was bullish and SMCI was trading above $120, The Arora Report call was that SMCI was worth only $44 – $48 at best.  SMCI is falling about 33% to about $32 as of this writing in the premarket on the news that its independent auditor resigned.
• Just released GDP data shows that the economy is strong even though the numbers are less than the consensus.  GDP is a lagging indicator.  The Arora Report system focuses on leading indicators.  Here are the details of the GDP data:
  • Q3 GDP-Adv came at 2.8% vs. 3.0% consensus.
  • Q3 Chain Deflator-Adv came at 1.8% vs. 2.3% consensus.
• Automatic Data Processing Inc ADP data indicates a strong jobs picture.  ADP is the largest payroll processor in the country and uses its data to give an advanced glimpse of the jobs picture ahead of the official jobs report that will be released on Friday at 8:30am ET.  In The Arora Report analysis, if the official jobs report also shows a strong jobs picture, it will decrease the probability that the Fed will cut interest rates at the next meeting.  
  • ADP employment change came at 223K vs. 105K consensus.
• ADP data is one more data point that has gone against the reason the Fed gave to cut interest rates by 50 bps in September.  As we have been writing, almost all of the data has gone against the Fed's reasoning for cutting rates by 50 bps.  
• In a major setback, Eli Lilly And Co LLY missed the earnings consensus.  LLY stock has fallen about 10% as of this writing in the premarket.  In sympathy, the stock of Novo Nordisk A/S NVO is also falling.  LLY and NVO stocks have been riding high on weight loss drugs.  As full disclosure, LLY stock is in The Arora Report’s ZYX Buy Core Model Portfolio, long from $318.45.  As of this writing, LLY stock is trading at $807.
• Jobless claims, personal income and spending, and  Fed’s favorite inflation gauge PCE will all be released tomorrow at 8:30am ET.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc. AMZN, MSFT, GOOG, and META.

In the early trade, money flows are negative in Apple Inc AAPL, Tesla Inc TSLA, and NVDA.

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

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust GLD.  The most popular ETF for silver is iShares Silver Trust SLV.  The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD is range bound.

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.

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.

The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.