Biden Takes Another Step In Artificial Intelligence War With China As AI Frenzy Continues

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

Biden’s New Step In AI War

Please click here for a chart of Advanced Micro Devices, Inc. AMD.

Note the following:

• The Morning Capsule is about the big picture, not an individual stock. The chart of AMD is being used to illustrate the point.
• It is no secret that China and the U.S. are geopolitical rivals. China is determined to beat the U.S. and become the world’s number one super power. The U.S. is determined to stay the world’s number one super power.  Artificial intelligence is one of the most important weapons in this war.
• In the AI war with China, Biden is taking another step. Biden is about to impose new restrictions on the export of artificial intelligence chips to China.
• Stocks of Chinese AI companies and Chinese megacaps such as Alibaba Group Holding Ltd - ADR BABA are down on the news. In the U.S., NVIDIA Corp NVDA is down about 3.5%, and AMD is down about 3% on the news as of this writing.
• Generative AI, which is behind ChatGPT, is very compute intensive. This means increased demand for datacenter semiconductors.
• Right now, among semiconductors Nvidia is the most popular among institutional investors. AMD is the most popular among retail investors.
• The chart shows that a big gap up occurred on the AMD chart even after a massive run triggered by false Microsoft Corp MSFT news. The news was that Microsoft would invest in the development of AMD’s artificial intelligence chip.  Microsoft stated that the news was false.  However, momo gurus kept pumping AMD stock citing the news that Microsoft would invest in AMD’s artificial intelligence chip without disclosing that the news was false.
• The gap shown on the chart occurred when Nvidia announced in its earnings report a $4B jump in revenues due to increased demand for AI. As a reference, ChatGPT was trained on 10,000 Nvidia GPUs.
• The chart shows AMD stock kept running up after the gap up.
• The chart shows an outside day.  An outside day is a classic reversal signal.  The chart shows that the classic reversal signal worked perfectly this time.
• The chart shows that AMD has lost about 20% from its peak even though the AI frenzy has continued.  The 20% loss has occurred while the stock market represented by SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust Series 1 QQQ has continued to go up.  Also during this time, the magnificent seven, as a group, have continued to perform.  The magnificent seven are Apple Inc AAPL, Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Meta Platforms Inc META, Microsoft, Nvidia, and Tesla Inc TSLA.
• The magnificent seven are responsible for a vast majority of the gain in the stock market in 2023.
• The Arora Report call has been and continues to be that AI is real and a fortune is to be made in AI over the next seven years.  However, it is not going to be a straight line.  The foregoing shows that at times, it is going to be treacherous.  Investors need to be highly disciplined and correctly follow a proven system such as the combination of ZYX Change Method and the adaptive ZYX Asset Allocation Model with inputs in ten categories.
• Also keep in mind that there are two flaws in the current logic that gurus are using to promote artificial intelligence.
  • They are talking about the revenues companies such as Microsoft and Nvidia are going to generate from artificial intelligence.  There is another side to the revenues.  For the companies that are buying AI, AI is a massive cost.
  • For many companies, AI will be a massive disruptive force and their stocks will go down.
• Our over 30 years of experience in the markets has clearly demonstrated that investors who develop in-depth knowledge perform significantly better compared to those investors who do not develop in-depth knowledge.  The best and most time efficient way to develop knowledge for AI investments is to listen to the podcasts in the Arora Ambassador Club.

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 selling gold in the early trade.  Smart money is inactive in the early trade.

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

Oil

API crude oil inventories came at a draw of 2.408M barrels vs. a consensus of a draw of 1.467M barrels.

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.

Bitcoin

Bitcoin BTC/USD is range bound.

Markets

Our very, very short-term early stock market indicator is negative.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

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 holding 21% - 39% in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 3% - 6%, and short term hedges of 5% - 8%. 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 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 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.