Benzinga - by The Arora Report, Benzinga Contributor.
To gain an edge, this is what you need to know today.
Gamma Squeeze Please click here for an enlarged version of the chart of Advanced Micro Devices, Inc. (NASDAQ: AMD).
Note the following:
- This article is about the big picture, not an individual stock. The chart of AMD is being used to illustrate the point.
- Gamma squeezes are taking place in many AI stocks, driving them higher.
- The chart shows a gamma squeeze is taking place in AMD. Gamma squeeze is an important market mechanic.
- RSI on the chart shows AMD has more room to run.
- The chart shows an upward sloping trendline on AMD.
- The chart shows the move up in AMD has accelerated away from the trendline.
- The most important point for prudent investors is that the gamma squeeze in AMD was triggered by investors who missed out on NVIDIA Corp (NASDAQ: NVDA) and are reluctant to buy NVDA stock at this high price. These investors are now aggressively buying call options on AMD.
- There is extremely aggressive buying in Dell Technologies Inc (NYSE: DELL) on a comment that orders for AI servers increased by 40%.
- The momo crowd is buying DELL stock with the hope of DELL stock rocketing, just like Super Micro Computer Inc (NASDAQ: SMCI). The momo crowd ran up SMCI without understanding the fundamentals of the company.
- The fair value of SMCI is less than half of where the stock is trading as of this writing in the premarket. DELL reported good earnings but is not under valued where it is trading.
- Elon Musk was a co-founder of OpenAI. OpenAI is responsible for ChatGPT. Investment in OpenAI is also the centerpiece of Microsoft Corp's (NASDAQ: MSFT) AI strategy. Musk is suing OpenAI for putting profits above humanity. OpenAI is a nonprofit organization. The suit says, “OpenAI Inc has been transformed into a closed-source, de facto subsidiary of the largest technology company in the world: Microsoft. Under its new board, it is not just developing but is actually refining an AGI to maximize profits for Microsoft, rather than for the benefit of humanity.”
- A major Wall Street bank has done the unthinkable. They downgraded Apple Inc (NASDAQ: AAPL). Not many dare to downgrade AAPL or even take a cautious view on AAPL stock. The reason is that AAPL is such a favorite with investors that any negative comments about AAPL hurt the revenues of whoever is making cautious comments. As a full disclosure, AAPL is a very large position in The Arora Report's ZYX Buy Model Portfolio as it is long from $4.68. Nonetheless, The Arora Report has previously highlighted risks in AAPL stock.
- In Fed speak yesterday, Fed officials expressed cautious optimism about rate cuts. Fed President John Williams stated that he does not expect to further tighten policy. There is more Fed speak today.
- ISM Manufacturing Index will be released at 10am ET. Consensus is 49.5%. The data may be market moving.
- University of Michigan Consumer Sentiment will be released at 10am ET. Consensus is 79.6. The data may be market moving.
- Expect blind money to flow into the stock market today. Blind money is the money that pours into Wall Street on the first two days of the month without any analysis and irrespective of market conditions. Most of blind money is invested in the afternoon.
- Wall Street front runs the blind money by buying certain stocks in the morning and then selling them to blind money in the afternoon at a profit. Of course, blind money is oblivious because they do not care what price they pay.
- 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.
In the early trade, money flows are neutral in MSFT, Amazon.com, Inc. (NASDAQ: AMZN), and Meta Platforms Inc (NASDAQ: META).
In the early trade, money flows are negative in AAPL, Alphabet Inc Class C (NASDAQ: GOOG), and Tesla Inc (NASDAQ: TSLA).
In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust (ARCA:SPY) and Invesco QQQ Trust Series 1 (NASDAQ: 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.
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 (ARCA:GLD).The most popular ETF for silver is iShares Silver Trust (ARCA:SLV).
Oil The momo crowd is buying 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 (ARCA:USO).
Bitcoin Bitcoin (CRYPTO: BTC) is range bound as investors wait for bitcoin whales’ move over the weekend. Bitcoin whales often move over the weekend, taking advantage of low liquidity to carry out their own profit generating plan.
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 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.
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