Nvidia Position Building Ahead Of Earnings, CPI Dampens Super Bullish Stock Market Hopium

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

Hopium Dashed

Note the following:

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

• The chart shows that QQQ has traced an island reversal. This is a bullish technical pattern.
• The chart shows the resistance zone is nearby.
• RSI on the chart shows the bounce from the oversold condition continues to strengthen.
• The chart shows the power of the bounce from the oversold condition overcame the negative in the Producer Price Index (PPI) report. Please see yesterday's Morning Capsule for details.
• Consumer Price Index (CPI) data came in line with consensus. Here are the details:
  • Headline CPI came at 0.2% vs. 0.2% consensus.
  • Core CPI came at 0.2% vs. 0.2% consensus.
• Whisper numbers circulating among the super bullish momo crowd were 0.1% for the headline and 0.1% for the core.  As a result, the momo crowd is positioned for a rip roaring stock market rally after the CPI release.  The momo crowd aggressively bought stocks ahead of the release.  After the release, there is disappointment since the data came hotter than the whisper numbers.
• Now that CPI data came in warmer than the whisper numbers, prudent investors should carefully watch the new narrative that momo gurus may come up with to prevent their followers from selling stocks.
• In The Arora Report analysis, the determining factor in the very short term will be if the aggressive buying in AI stocks continues or falters.
• NVIDIA Corp NVDA stock saw aggressive position building yesterday ahead of earnings, which are set to be released on August 28.
• Aggressive buying in NVDA lifted all AI stocks.
• The U.S. government is looking at breaking up Alphabet Inc Class C GOOG after a judge ruled that Google is a monopolist.  Investors are temporarily shrugging off the news hoping that Trump will be elected and keep Google intact.

U.K.

U.K. July CPI came at -0.2% vs. 0.0% consensus.  Inflation data in the U.K. tends to lead U.S. data.

Magnificent Seven Money Flows

In the early trade, money flows are positive in NVDA and Tesla Inc TSLA.

In the early trade, money flows are neutral in Apple Inc AAPL, Amazon.com, Inc. AMZN, Microsoft Corp MSFT, and Meta Platforms Inc META.

In the early trade, money flows are negative in GOOG.

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

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ.  Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust GLD.  The most popular ETF for silver is iShares Silver Trust SLV.  The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD is range bound.

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 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 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.