Momo Crowd Buying Semiconductors Ahead Of Nvidia Earnings, Biggest Payroll Revision Since 2009

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

Semiconductor Buying

Please click here for an enlarged chart of VanEck Semiconductor ETF SMH.

Note the following:

• The chart shows the moves in semiconductors after prior NVIDIA Corp NVDA earnings.
• The chart shows that semiconductors traced a double top, which is a negative pattern, and then dropped to the support zone.
• The chart shows that semiconductors bounced off of the support zone.
• RSI on the chart shows that semiconductors are overbought. Overbought markets tend to be vulnerable to the downside.
• The momo crowd is aggressively buying semiconductors ahead of Nvidia earnings as they believe semiconductors will rise after Nvidia earnings just like they have in the past.
  • Prudent investors need to remember that history is instructive, but the road ahead is not always the same as the road behind.  
• U.S. payrolls have been revised down by 818,000 for the year ending in March.  This is the biggest downward revision since 2009.
• The Bureau of Labor Statistics did not post the jobs revision data on its website at 10am ET as it was supposed to.  However, the banks who called the Bureau were able to get the data, gaining an advantage.  The data was finally made available about 30 minutes late.
  • The initial reaction from the market was a spike up as many believe this will encourage the Fed to make bigger rate cuts.
  • Investors who knew that the data did not include data since March sold into the spike.
• The FOMC minutes were dovish and indicate that the Fed is poised to cut rates in September.
• Weekly jobless claims came at 232K vs. 225K consensus. Lately, the stock market is reacting when jobless claims are lower than the consensus but ignoring when they are higher than the consensus.  The reason is that the bullish sentiment is so extreme that investors want to hear only what makes the market go higher.  

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc AAPL, Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Meta Platforms Inc META, NVDA, and Tesla Inc TSLA.

In the early trade, money flows are neutral in Microsoft Corp MSFT.

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

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 seeing buying as the Harris campaign indicates support for crypto.

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.