Sentiment From Tesla Earnings Counterbalances Rising Yields, Good For Nvidia

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

Counterbalanced Crosscurrents

Please click here for an enlarged chart of Tesla Inc TSLA.

Note the following:

• This article is about the big picture, not an individual stock.  The chart of TSLA stock is being used to illustrate the point.
• The chart shows that prior to the release of Tesla earnings, TSLA stock was approaching the top band of the support zone.
• After the close, Tesla reported blowout earnings.
• Tesla earnings are significantly better than the whisper numbers.  Stocks move based on the difference between report numbers and whisper numbers.  Whisper numbers are the numbers analysts provide privately to their best clients.  These numbers are often different from the numbers the same analysts publish for public consumption.
• The most important number in Tesla earnings is ex-credits gross margin.  Tesla handily beat the Street consensus of 15.1%.  Tesla reported 17.1%.
• The chart shows that after the earnings TSLA stock is approaching the top band of the resistance zone.
• RSI on the chart shows TSLA stock going quickly from very oversold to very overbought.  Historically, such thrust in RSI leads to a higher stock price.
• If the historical precedence holds and the overall stock market does not tank, the probability of TSLA stock reaching the top resistance zone shown on the chart is about 70%.  As full disclosure, there is a new buy signal on TSLA in ZYX Buy.
• Tesla CEO Elon Musk's comments about robotaxi deployment are adding to the optimism.  Musk's comments about robotaxis are bringing in selling in Uber Technologies Inc UBER and LYFT Inc LYFT.
• NVIDIA Corp NVDA is the most important stock for this market.  Yesterday, due to rising yields, the NVDA breakout was failing.
• Tesla is one of the biggest customers of NVDA.  Blowout earnings from TSLA are bringing in buying to NVDA stock.  As of this writing in the premarket, NVDA has moved above the key $140 level.
• Markets always have crosscurrents.  We have been sharing with you that yields are rising.  In yesterday's Morning Capsule we wrote,

Ten year Treasury yield has reached 4.24% as of this writing in the premarket.  As we wrote yesterday, when the yield crosses 4.25%, it will start catching smart money’s attention.  This is exactly what is happening today, and it is bringing selling into the stock market.

• Yesterday, the yield on 10 year Treasuries reached 4.258% at its high.  This brought selling into the stock market.
• We have also been sharing with you in advance that for the stock market to sustain at this level earnings will have to be very robust. Tesla earnings are counterbalancing rising yields. 
• 20 year Treasury bond reopening auction results are poor, indicating less demand than expected.  Here are the details:
  • $13B 20 year Treasury bond reopening
  • High yield: 4.590% (When-Issued: 4.574%)
  • Bid-to-cover: 2.59
  • Indirect bid: 67.9%
  • Direct bid: 17.6%
• Initial jobless claims came at 227K vs. 246K consensus.  This indicates that the jobs picture is stronger than expected.  This data is an additional data point that shows the Fed was overly aggressive when the Fed spiked the punch bowl with the 50 bps cut.  Initial jobless claims is a leading indicator and carries heavy weight in our adaptive ZYX Asset Allocation Model with inputs in ten categories.  In plain English, adaptiveness means that the model changes itself with market conditions.  Please click here to see how this is achieved.  One of the reasons behind The Arora Report's unrivaled performance in both bull and bear markets is the adaptiveness of the model.  Most models on Wall Street are static.  They work for a while and then stop working when market conditions change.

Europe

European stocks are seeing buying on better than expected manufacturing PMI.

• Flash Manufacturing PMI came at 45.9 vs. 45.1 consensus.
• Flash Services PMI came at 51.2 vs. 51.4 consensus.

Buying in European stocks is bringing positive sentiment to the U.S. stock market in the early trade.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Microsoft Corp MSFT, Meta Platforms Inc META, NVDA, and TSLA.

In the early trade, money flows are neutral in Apple Inc 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 seeing buying on positive sentiment created by Tesla earnings.

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.