Important Earnings Ahead

Please click here for an enlarged chart of Cisco Systems Inc (NASDAQ:CSCO).

Note the following:

  • This article is about the big picture, not an individual stock.  The chart of CSCO stock is being used to illustrate the point.
  • Cisco is important because it is an example of a legacy company that has been rerated due to surging demand from AI data centers for its networking equipment.
  • The chart shows CSCO stock has surged about 50% this year.  Cisco has been the number one stock in the Dow Jones Industrial Average year to date.
  • The chart shows the drop after earnings.  Here are the important insights from Cisco earnings for prudent investors:
    • Cisco reported earnings and revenues better than consensus and whisper numbers.  Cisco is also guiding earnings and revenues above consensus and whisper numbers.
    • The momo crowd was aggressive buying CSCO stock ahead of earnings.
    • Upon release of earnings, the momo crowd ran CSCO stock up to $134.23.
    • Smart money sold into the strength.  CSCO is trading at $115.70 as of this writing in the premarket.
    • The commentary from Cisco is very positive and shows surging AI demand.
    • Why would smart money sell into the strength on outstanding earnings?  The reason smart money sold is because smart money digs deep and found the gross margin for the quarter was 66.3% vs. 68.4% last year.
    • Wall Street is uniformly coming to Cisco’s defense and raising targets.
  • For prudent investors, Cisco earnings provide two important learning points:
    • Smart money does not follow Wall Street’s widely published research. Smart money knows that anything that is widely published offers no edge.  
    • Smart money has its fingers on the trigger and is ready to act to protect profits in case the AI trade fizzles out.  This is in contrast to the momo crowd that does not take risk into account.  
  • In our analysis, the foregoing behavior of smart money has much wider implications.  Since smart money pays attention to the risk, smart money gets progressively richer by holding on to most of the profits. In contrast, the momo crowd rides the rollercoaster of making a lot of money when euphoria is raging and then loses it all when the inevitable pullback happens.  The reference to the recent loss of 67% in the month of July by the fund Situational Awareness in spite of some risk controls is a case in point.  
  • There is an extremely important earnings report after the market close today.  The earnings report is from Applied Materials Inc (NASDAQ:AMAT).  Applied Materials is one of the largest semiconductor equipment manufacturing company in the world.  Applied Material’s earnings provide great insights into the sentiment among the managements of semiconductor companies.
  • As a full disclosure, We are long AMAT from an average of $16.  It is trading at $549.00 as of this writing in the premarket, representing a gain of 3331%.
  • One of the momo crowd’s favorite chip stocks has been Cerebras Systems Inc (NASDAQCBRS).  Of note is that CBRS is down about 17% after reporting earnings.
  • Speculation is building that the Anthropic IPO will be larger than the Space Exploration Technologies Corp
     (NASDAQ:SPCX) IPO.
  • Producer Price Index came cooler.  Here are the details:
    • Headline PPI came at 0.0% vs. 0.1% consensus.
    • Core PPI came at 0.2% vs. 0.3% consensus.
  • Prudent investors need to look below the headline of PPI.  PPI ex-food, energy, and trade came at 0.4% vs. 0.3% consensus. Note that this number is hotter.
  • Initial jobless claims came at 209K vs. 205K consensus.

Magnificent Seven Money Flows

Most portfolios are now heavily concentrated in the Mag 7 stocks.  For this reason, it is important to pay attention to early money flows in the Mag 7 stocks on a daily basis. 

In the early trade, money flows are positive in Apple Inc (NASDAQ:AAPL), Alphabet Inc Class C (NASDAQ:GOOG), Meta Platforms Inc (NASDAQ:META), Microsoft Corp (NASDAQ:MSFT), and NVIDIA Corp (NASDAQ:NVDA).

In the early trade, money flows are neutral in Amazon.com, Inc. (NASDAQ:AMZN).

In the early trade, money flows are negative in Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are positive in SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust Series 1 (NASDAQ: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 (CRYPTO:BTC) is range bound.

What To Do Now

Consider continuing to hold good, very long term, existing positions and add tactical positions based on signals.

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.