Investors Pin Hope On Apple Intelligence, Short Squeeze And Weaker Yen Drive Stock Market Higher

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

Hope Pinned On Apple Intelligence

Please click here for an enlarged chart of Apple Inc AAPL.

Note the following:

• This article is about the big picture, not an individual stock.  The chart of AAPL stock is being used to illustrate the point.
• The chart shows when the iPhone 15 was launched.
• The chart shows the move from iPhone 15 launch to today's iPhone 16 launch.
• Investors are hopeful that the move in AAPL stock from the iPhone 16 launch to the iPhone 17 will be much bigger compared to the stock move between the launch of iPhone 15 and iPhone 16.
• The chart shows that even though investors have stars in their eyes, for the short term, AAPL stock has traced a negative pattern.
  • The chart shows that AAPL stock hit the top of the resistance zone in July.
  • The chart shows that AAPL stock failed to penetrate the resistance zone.
  • The chart shows that after AAPL stock failed to penetrate the resistance zone, it fell all the way to the bottom band of the support zone.
  • The chart shows that AAPL stock rallied after falling to the bottom of the support zone.
  • The chart shows that the rally stopped at the low band of the resistance zone.
• Investors are mostly focused on hopes that Apple Intelligence, the name for Apple's artificial intelligence, will start a new super cycle of iPhone sales, and thus lift Apple sales from being sluggish for a long time.
• Even though there is a lot of exuberance about Apple Intelligence, prudent investors need to remember that the momo crowd focuses only on the bullish factors and ignores the negative factors.  In contrast, smart money takes into account both positive and negative factors.
• There are several negative factors about Apple that the stock market is ignoring right now that prudent investors should be aware of:
  • Apple intelligence will likely not be available in the European Union and China.
  • Even in the U.S., most Apple Intelligence features will not be available right away.
  • The launch of all Apple Intelligence features is staggered over a long period of time.
  • The fact that Apple Intelligence that will initially be present in the iPhone is only half baked may delay the super cycle.
  • The marketing hype about Apple Intelligence is way more than reality.
  • Apple does not own its AI.  Apple is licensing its AI from OpenAI.
  • The model behind the AI that Apple is offering is not running on the iPhone or on Apple servers.  The model appears to be running on  NVIDIA Corp NVDA based servers owned by Microsoft Corp MSFT.
  • Apple has been receiving $20B per year from Alphabet Inc Class C GOOG to make Google the default search.  A judge has ruled that Google is a monopolist.  In due course, the government may force Google to stop paying $20B to Apple.
  • In China, Apple is losing market share to Huawei.
    • Many Chinese believe that Huawei phones are superior to the iPhone.
    • Huawei is trying to crash Apple's iPhone part by introducing the world's first tri-fold phone.
    • Due to geopolitics between the U.S. and China, nationalist sentiment in China is rising against the U.S.  This poses a significant risk to Apple since about 20% of Apple sales come from China.
• We understand that investors are very loyal to Apple.  Before sending us hate email for doing a comprehensive analysis, note that Apple is the largest position in The Arora Report’s ZYX Buy Model Portfolio.  Long time members of The Arora Report are long AAPL stock from $4.68.
  • Note that Warren Buffett has been selling AAPL stock.
• Prudent investors should also be aware that Apple can easily manipulate its stock.  After the last Apple event when Apple had carefully staged to run up its stock, Apple stock started falling.  Apple aggressively bought its own stock to cause a technical breakout.  
• Apple is clearly anxious about today's event, as demonstrated by the fact that this event is taking place on a Monday, whereas Apple generally does not hold major events on Mondays.  Apple is trying to get ahead of a potential European Commission decision on Apple being forced to pay $14B in taxes.  
• There is aggressive buying in stocks this morning due to two reasons:
  • A short squeeze is occurring. The technical pattern with the stock market, especially AI stocks traced on Friday afternoon, historically leads to a selloff on Monday.  When stock futures did not open much lower on Sunday night, a short squeeze started.  As the night went on, the short squeeze accelerated.
  • The reason stock futures did not open much lower is because Japanese yen weakened.  The weakening yen has saved AI stocks from a blood bath this morning.  
  • The fact that a short squeeze and weakening yen saved the stock market means that prudent investors should not become complacent.  Pay attention to the protection band.  See the Protection Band And What To Do Now section below.    

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc. AMZN, NVDA, MSFT, GOOG, Meta Platforms Inc META, and Tesla Inc TSLA.

In the early trade, money flows are negative in AAPL.

In the early trade, money flows are positive 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.  Bitcoin ETFs have seen a negative money flow of $1.2B in the last eight days.  This is the longest streak of negative money flows in bitcoins ETFs.   

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.