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Renewed AI Frenzy Leads Market To New High Overshadowing Negatives

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

Renewed AI Frenzy

Please click here for an enlarged version of the chart of SPDR S&P 500 ETF Trust SPY which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

  • The chart shows that the stock market hit a new high.
  • The new stock market high has been triggered by renewed AI frenzy after NVIDIA Corp NVDA earnings. The value of NVDA stock surged by a record $277B in one day.
  • NVDA earnings sparked not only buying in the U.S. but also in stock markets across the globe.
  • RSI on the chart shows that the stock market has room to run up.
  • The chart shows a gap up on volume that was not heavy. This indicates lack of conviction.
  • The AI frenzy is overshadowing all of the negatives. The two major negatives are the following:
    • Interest rates are likely to stay higher for longer.
    • Outside of AI, Wall Street’s earnings estimates are too high.
  • In The Arora Report analysis, the probability is only about 30% of a Fed rate cut in May.  
  • This morning in the early trade, the stock market is calm after yesterday’s rip roaring rally on NVDA earnings.
  • 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.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Meta Platforms Inc META, Microsoft Corp MSFT, and NVDA.

In the early trade, money flows are neutral in Apple Inc AAPL and Alphabet Inc Class C GOOG.

In the early trade, money flows are negative in Amazon.com, Inc. AMZN and Tesla Inc TSLA.

In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust  and Invesco QQQ Trust Series 1 QQQ.

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade. Smart money is inactive in the early trade.

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Gold

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

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

The most popular ETF for gold is SPDR Gold Trust GLD. The most popular ETF for silver is iShares Silver Trust SLV

Oil

The momo crowd is selling oil in the early trade. Smart money is inactive in the early trade.

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

We wrote in yesterday’s Morning Capsule:

There is speculation that bitcoin may see some selling as investors sell bitcoin to buy NVDA.

This is exactly what is happening today as Bitcoin BTC/USD is seeing some selling.

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.

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 2008 financial crash, the start of a mega bull market in 2009, the COVID crash, the post-COVID bull market, and the 2022 bear market.  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.

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