Stock Market Bears Say AI Rally Is Over, Critical Powell Speech

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

Bears Take A Stand

Please click here for a chart of Invesco QQQ Trust Series 1 QQQ.

Note the following:

• The chart is a monthly chart to give you a long term perspective.
• The chart shows the key resistance line.
• The chart shows that the relentless rise in the stock market this year is being punctuated in August.
• For the bull case, the extent of the ‘sell the news’ reaction to NVIDIA Corp's NVDA extraordinary earnings blowout is troubling. The sell the news reaction is common, but the extent of the selloff on great news is not common.
• Members of The Arora Report had some clues yesterday before the selloff when the momo crowd was aggressively buying stocks, especially tech stocks, before the market open. Here were the important clues from the Morning Capsule:

Investors should be mindful of a potential ‘sell the news’ reaction as the day progresses in spite of the bullishness this morning.

Money flows in NVDA were extremely positive in after hours after release of the earnings. However, in the premarket, money flows in NVDA are negative. Money flows after hours were very positive in Apple Inc AAPL, Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Meta Platforms Inc META, Microsoft Corp MSFT, NVIDIA Corp NVDA, and Tesla Inc TSLA. However, money flows this morning are negative in AAPL and GOOG.

Our very, very short-term early stock market indicator is positive but can quickly turn negative.

• The case that bears are making is that a double top is developing on the chart. The double top is a negative pattern.
• Permabear gurus are out in full force declaring the AI frenzy driven stock market rally is over.
• The momo crowd is not deterred by permabear proclamations. The momo crowd is buying again believing that the NVDA earnings dip is a buying opportunity.
• The chart shows that RSI has pulled back along with the market but is still overbought.
• Investors are waiting for Powell’s speech at Jackson Hole. The speech will start at 10:05am ET.
• Going into the speech, investors are obsessed with R*. R* is a theoretical level indicating a neutral rate. In plain English, a neutral rate is an interest rate that is not restricting or stimulating the economy.
• Since 2009, the Fed’s projections have been a median of  2.5% for the long term policy rate. The concern is that Powell may want a higher policy rate for the long term. As a reference, in the past, Powell has said that he doesn't know what the neutral rate should be.
• 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 Amazon.com, Inc. AMZN, Microsoft Corp MSFT, Meta Platforms Inc META, and Apple Inc AAPL.

In the early trade, money flows are negative in Tesla Inc TSLA, Alphabet Inc Class C GOOG and NVIDIA Corp (NASDAQ: 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 In Stocks

The momo crowd is buying stocks in the early trade. Smart money is 🔒 in the early trade. To see the locked content, please click here to start a free trial.

Gold

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

For longer-term, please see oil ratings.

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

Bitcoin

Bitcoin BTC/USD is range bound.

Markets

Our very, very short-term early stock market indicator is 🔒. 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 🔒 in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 🔒, and short term hedges of 🔒. 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.