88% Of Companies Beat Consensus; Earnings From Alphabet, Tesla, And Intel Ahead; Japan Problem

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

88% Of Companies Beat Consensus

Please click here for an enlarged chart of Alphabet Inc GOOG, GOOGL.

Note the following:

• In our analysis, in the long run, earnings are the single biggest determinant of the stock market direction. So far this season, 88% of companies have beaten consensus estimates despite tariff headwinds.
• This article is about the big picture, not an individual stock. The chart of GOOG stock is being used to illustrate the point.
• The chart shows that GOOG stock is still significantly below its high, even though the stock market has moved higher than prior highs. GOOG stock has lagged due to concerns about AI chatbots taking market share away from Google search.
• The chart shows that GOOG stock is going up going into earnings. Over the last month, the optimism about Alphabet has significantly increased amongst investors.
• The chart shows that GOOG stock is entering zone 2 (resistance).
• RSI on the chart shows that GOOG stock is overbought going into earnings.
• There are several important earnings being reported this week, but Alphabet earnings are the most important. For two reasons:
  • Alphabet earnings will impact the sentiment on about 40% of S&P 500 capitalization.
  • Alphabet’s earnings are a proxy for digital advertising, due to the dominance of Google search.
• Consumers’ habits of searching are changing. However, in spite of AI search alternatives such as ChatGPT, Alphabet’s earnings have been resilient for several reasons:
  • Most AI search bots do not accept advertising, and as such, Alphabet has had no increased competition in advertising. In our analysis, this is about to change. AI bots are about to accept advertising.
  • Alphabet has adapted by adding AI mode to search results. So far, Alphabet has successfully monetized AI mode.
  • Alphabet has made its search results junk ridden and less useful to drive advertising. Remember that Google sees its client as the advertiser, not the person using the search engine. In our analysis, although making search junk ridden has benefited Google in the short term, it will hurt Google in the long term.
  • Alphabet has diversified its revenue stream with Google Cloud and YouTube. YouTube is performing extremely well.
• In our analysis, in the long term, Alphabet has significant risk of losing search dominance. This is the reason our buy zone on GOOG is suspended. On the flip side, Alphabet is the cheapest of the Mag 7 stocks, and its Waymo unit has significant potential in robotaxis.
• The second most important earnings this week are from Tesla Inc (TSLA). TSLA earnings have a major impact on the speculative sentiment in the entire market.
• In the early trade, TLSA stock is seeing significant buying on CEO Elon Musk saying that he is back to working 7 days and sleeping in the office.
• About 25% of the S&P 500 report earnings this week.
• Other important earnings this week include Intel Corp (INTC), Texas Instruments Inc (TXN), IBM Common Stock (IBM), Coca-Cola Co (KO), Honeywell International Inc (HON), NXP Semiconductors NV (NXPI), Halliburton Co (HAL), Rtx Corp (RTX), Boston Scientific Corp (BSX), AT&T Inc (T), Freeport-McMoRan Inc (FCX), GE Vernova Inc (GEV), and T-Mobile Us Inc (TMUS).
• Leading indicators were released at 10am ET and may be market moving.
• Treasury Secretary Bessent is saying the quality of the trade deal with the E.U. is more important than meeting the August 1 deadline. The stock market is taking this as a positive.

Japan

Japan is important to the U.S. market due to the carry trade. The ruling party in Japan suffered losses in the election. This will make the job of Prime Minister Ishiba more difficult in negotiating a trade deal with the U.S. as well as holding off against the demands of the opposition. As of this writing, the yen is rallying against the dollar. Prudent investors should keep a close eye on the yen and Japan.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc (AAPL), Amazon.com, Inc. (AMZN), Alphabet Inc Class C (GOOG), Meta Platforms Inc (META), NVIDIA Corp (NVDA), and Tesla Inc (TSLA).

In the early trade, money flows are negative in Microsoft Corp (MSFT).

In the early trade, money flows are neutral 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 is range bound.

Arora Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror. Our proprietary Protection Band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.

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.

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