Nvidia Surpasses Apple On AI Frenzy, ECB Cuts Rates

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

Nvidia Surpasses Apple

Please click here for an enlarged chart of NVIDIA Corp NVDA.

Note the following:

• The chart shows the move up in NVDA stock after earnings.
• The chart shows a second leg up on four pieces of news stoking the AI frenzy and Wall Street front running:
  • Nvidia announced its Rubin platform.
  • Hewlett Packard Enterprise Co HPE earnings showed high demand for Nvidia chips. Moreover, HPE’s CEO was skeptical of competitors catching up to Nvidia.
  • Elon Musk diverted Nvidia chips from Tesla Inc TSLA to his AI startup. The stock market interpreted Musk’s move as additional demand for Nvidia chips.
  • Nvidia was the highlight at a conference in Taiwan.
  • Wall Street is front running the upcoming NVDA stock split on hopes of selling NVDA stock at a profit to retail investors who are anticipated to jump in after the stock split.
• Nvidia has now surpassed Apple Inc AAPL in market capitalization. Now there are three companies worth more than $3T: Microsoft Corp MSFT, Apple, and Nvidia. The three companies constitute over 20% of the total market cap of the 500 companies in the S&P 500.
• In The Arora Report analysis, the U.S. stock market has never in history been this concentrated in three stocks in only one sector. This is a risk factor that prudent investors need to be aware of. This is an important observation because all three of these stocks are in the Arora Model Portfolio. 
• The European Central Bank (ECB) has cut interest rates. Here are the key points:
  • The key rate is cut by 25 bps.
  • ECB is not precommitted to more rate cuts.
  • ECB is raising the inflation forecast for the rest of 2024 and 2025.
  • In The Arora Report analysis, the gap between the Fed’s policy and ECB’s policy has widened.
  • In The Arora Report analysis, the Fed is not likely to follow the ECB. The Fed is likely to hold interest rates next week at the FOMC meeting.
• Initial jobless claims came at 229K vs. 216K consensus. In The Arora Report analysis, this data shows that the labor market is cooling. When the labor market cools, it encourages the Fed to cut interest rates.
• For today’s anticipated price action, please scroll down to the very, very short term indicator in the “Markets” section.

Magnificent Seven Money Flows

In the early trade, money flows are positive in NVDA.

In the early trade, money flows are neutral in Amazon.com, Inc. AMZN, MSFT, Alphabet Inc Class C GOOG, TSLA, and AAPL.

In the early trade, money flows are negative in Meta Platforms Inc META.

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 inactive in the early trade.

Note for new investors: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money.

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 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 USO.

Bitcoin

Bitcoin BTC/USD is range bound and trading above $71,000 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.