To gain an edge, this is what you need to know today.
Course Of AI Rally
Please click here for an enlarged chart of Micron Technology Inc MU.
Note the following:
- This article is about the big picture, not an individual stock. The chart of MU stock is being used to illustrate the point.
- Micron earnings will determine the course of the AI rally. Micron earnings will be released Wednesday after the close.
- The chart shows a gap up after earnings release last quarter. Bulls are expecting a similar gap up this time. However, prudent investors know that earnings is a risk event and the results can go either way. Consider starting with Arora Second Law of Investing and Trading, which states, “Nobody knows with certainty what is going to happen in the markets.” Consider following with Arora’s Third Law, which states, “Making investing and trading decisions based on probabilities is the only realistic and profitable approach.”
- The chart shows that in June, MU stock accelerated away from the trendline.
- The chart shows last week MU stock traced a bearish engulfing candle. This is a negative pattern.
- The bearish engulfing pattern in Micron coincided with a bearish engulfing pattern in NVIDIA Corp NVDA. Please click here to read more.
- High bandwidth memory is essential for AI data centers. As we have previously shared with you, Micron is sold out of high bandwidth memory for the rest of the year.
- Consensus earnings estimates for Micron are $0.48 and $6.6B for revenue.
- Whisper numbers have been creeping up and are now at $0.55 in earnings and $7B in revenue.
- Stocks move based on the difference between the reported numbers and whisper numbers. Whisper numbers are the numbers analysts privately share with their best clients and are often different from the numbers the same analysts publish for the public.
- The fate of the AI rally, and in turn the fate of the entire stock market in the near term, depends on Micron earnings, projections, and the commentary. Historically, Micron’s CEO tends to be very bullish.
- Nvidia (NVDA), the king of AI, continues to go lower in volatile trading after tracing a negative technical pattern last week. Of note is that there was a rally attempt around 8am ET, but the rally attempt failed. If a rally attempt succeeds, it will move the entire stock market to the upside.
- Prudent investors should note that NVDA stock has drifted down in spite of massive buying by the technology ETF Technology Select Sector SPDR Fund XLK. XLK has about $72B in assets. Last week, it increased NVDA weighting from about 5% to over 20%. XLK compensated by reducing AAPL’s weighting from about 21% to about 5%.
- The European commission has told Apple Inc AAPL that preliminarily, Apple’s App Store is in breach of the Digital Markets Act (DMA). Investors are ignoring it because in the past, Apple’s violations of regulations have resulted in only slaps on the wrist. However, prudent investors should pay attention to DMA because DMA has teeth.
- Chicago Fed President Austan Goolsbee is optimistic that inflation data will improve as the economy is showing signs of cooling.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Meta Platforms Inc META and Tesla Inc TSLA.
In the early trade, money flows are neutral in AAPL, Amazon.com, Inc. AMZN, and Alphabet Inc Class C GOOG.
In the early trade, money flows are negative in Microsoft Corp MSFT and NVDA.
In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust Series 1 QQQ.
Momo Crowd And Smart Money
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
Money flows in bitcoin ETFs have cooled. This is leading to a drop in bitcoin BTC/USD. Bitcoin is trading below $62,000 as of this writing.
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 seven 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.
This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.