SMART MONEY SELLS MOMO CROWD’S FAVORITE AI STOCK, BANK OF JAPAN RESCUES THE U.S. STOCK MARKET

By Nigam Arora & Dr. Natasha Arora

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

BOJ Saves The U.S. Stock Market

Please click here for a chart of Super Micro Computer stock (SMCI).

Note the following:

• The Morning Capsule is about the big picture, not an individual stock.  The chart of SMCI stock is being used to illustrate the point.
• SMCI is a favorite AI stock of the momo crowd.
• The momo crowd was eagerly awaiting SMCI earnings, hoping it would run up back to over $1000 and take the rest of the AI stocks much higher along with it.
• In The Arora Report analysis, the average cost of the momo crowd for SMCI is above $1000.  As of this writing in the premarket, SMCI is trading at $529.94.
• After the earnings release yesterday in the after market, the momo crowd immediately ran up SMCI stock to $727.70.  The momo crowd was excited about the 10 for 1 stock split.
• Smart money took advantage of the strength generated by momo crowd buying to start selling SMCI.  The reason smart money sold SMCI is that gross margins came at 11.3% vs. 14.1% consensus.
• Investors should note that after the drop caused by smart money selling, SMCI has not been able to significantly rally so far in spite of CEO Charles Liang saying that margins will rise to 14% – 17% in FY25.
• The chart shows that from its peak, SMCI stock has lost 56.4%.
• The chart shows that at least a modicum of sanity is beginning to set in in AI stocks after the unrestrained frenzy caused by incessant momo crowd buying.
• The chart should not surprise you because as a member of The Arora Report, you knew a drop was coming.  The high in SMCI occurred on March 8.  Four days before the high, on March 4, we wrote in the Morning Capsule,

SMCI has become a favorite of the momo crowd.  The momo crowd incorrectly thinks SMCI has the same potential as Nvidia (NVDA).  Investors need to keep in mind the following:

• SMCI moves a lot more than NVDA.  SMCI is so volatile because of the small float.
• SMCI is an assembler of servers for artificial intelligence.  It uses components from NVDA, Micron (MU), and Marvell (MRVL).
• NVDA has a large moat to protect it that includes IP for its GPUs.  SMCI has no moat and the barrier to entry for competitors is low.
• SMCI sales are to hyperscalers like Microsoft (MSFT), Amazon (AMZN), and Google (GOOG).  The reason SMCI sales are booming is that they have availability of NVDA chips.  As chips become more available to competitors, SMCI will not be able to sustain its sales growth rate.
• The momo crowd is buying SMCI due to lack of knowledge.  However, there are many investors who understand and have the knowledge of SMCI’s business.  Many such investors are short selling SMCI.  For the time being, short sellers are being overwhelmed by the YOLO crowd.
• Taking all of the above into consideration with the quantitative analysis screen of the ZYX Change Method, in an optimistic case, the fair value of SMCI stock is $442 – $486.
• The spot on call above demonstrates the wisdom of what The Arora Report has been sharing with you – a fortune is to be made in artificial intelligence between now and 2030.  However, it is not going to be a straight line.  At times, it is going to be treacherous.  Based on the feedback from investors so far, it is clear that investors who are developing in depth knowledge of investing in AI are doing better than those who are not, with both groups getting the same signals.  The problem investors face is that it is very difficult to find objective investing information on AI as a vast majority of the content in the media is produced with an agenda that is not in investors’ best interest.  Arora Ambassador Club was started based on your requests to provide next level information in an objective fashion.
• A number of indicators yesterday afternoon were showing that the bounce from Monday’s low was running out of steam.  When SMCI fell, other AI stocks also fell in the after market.  Yesterday evening, it was evident that the most likely course for the stock market today would be to go down.  At one point, Japanese stocks were down 2%.
• Bank of Japan (BOJ) saved markets across the world, including the U.S. stock market.  BOJ Deputy Governor Shinichi Uchida said that BOJ will not raise interest rates if markets are unstable.  Markets in Asia immediately rallied.  The strength carried on to Europe and now to the U.S. 
• The yen has fallen on Uchida’s statement.  This shows that The Arora Report’s call on Monday has proven spot on.  The headline of the signal in ZYX Allocation on Monday read “FXY: YEN JUMPS — TAKE PARTIAL PROFITS.”  This profit taken signal was given right at the high.
• With support from BOJ, the urgency among funds to unwind the carry trade has disappeared.  In The Arora Report analysis, some funds may begin establishing new carry trade positions by borrowing in yen and investing the money in U.S. stocks. However, this is only for the short term.  In the longer term, the carry trade will unwind again as the yen is very undervalued.
• -- The Arora Report call is that ultimately the yen can reach 120 yen to a dollar.  As a reference, the yen is trading around 147 as of this writing.  
• 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. The protection band is one of the large number of unique edges that are available to members of The Arora Report.

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Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta (META), Tesla (TSLA), and Apple (AAPL).

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

Note for new members: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling.  Over a long period of time, investors come out ahead by adopting smart money’s ways.  The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money.

Gold

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

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

Oil

Oil is jumping on fear of Iran retaliating against Israel.

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 seeing buying on the drop in the yen.

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.

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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 $2443, silver futures are at $27.15, and oil futures are at $74.75.

S&P 500 futures are trading at 5324 as of this writing.  S&P 500 futures resistance levels are 5400, 5500, and 5622: support levels are 5256, 5210, and 5020.

DJIA futures are up 294 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.

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.

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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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