Shift From Nvidia To This Stock As The Favorite, Traders Moving From Trump Trade To Bessent Trade

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

Bessent Trade

Please click here for a chart comparing NVIDIA Corp NVDA and MicroStrategy Inc MSTR. 

Note the following:

• The chart shows Microstrategy (MSTR) is up over 70% since Trump's re-election.
• The chart shows Nvidia (NVDA) on the other hand is down about 2.5% since Trump's re-election.  
• There is a sharp difference between Nvidia and Microstrategy.
  • Nvidia has developed world changing chips for artificial intelligence.
  • Microstrategy buys bitcoin and is a leveraged way to play bitcoin. At one time, MSTR market cap rose to over 300% of the value of the bitcoin it owned.  
• Traders have shifted from NVDA being their favorite stock to MSTR being their favorite stock.  
• Here is how Microstrategy's business model works:
  • Microstrategy raises money by selling stocks and bonds.  
  • Microstrategy uses the proceeds to buy bitcoin. 
  • Microstrategy highly publicizes its plans to buy bitcoin. 
  • Microstrategy buying runs up bitcoin. 
  • The run up in bitcoin prompts traders to super aggressively buy more MSTR stock.
  • The super aggressive buying runs up MSTR stock.
  • Microstrategy takes advantage of the run up in its stock to buy more bitcoin. 
  • Microstrategy continues to repeat the process, and traders continue to buy more MSTR stock, running it up higher.
• Nvidia's business model is to continuously innovate and progressively produce more powerful chips and software to advance AI.  
• 72.5% outperformance shown on the chart of MSTR over NVDA is a great indicator for prudent investors of the sentiment in this market.  
• Investors are buying stocks and cryptos with total abandon.  If it was not for the positive seasonality and year end chase, this kind of reckless buying would have resulted in increasing the protection band because extreme positive sentiment is historically a sell signal.  However, The Arora Report call remains to buy the dips because the year end chase is likely to trump all other factors.  In year end chase, even bearish money managers aggressively buy stocks to keep up with their benchmarks.
• Trump has picked Scott Bessent as the next Treasury Secretary.  Bessent is a Wall Street insider.  Elon Musk had previously tweeted that the selection of Bessent would mean business as usual.  Wall Street is celebrating Bessent's selection by starting to shift from the Trump trade to the Bessent trade.  In The Arora Report analysis, the Bessent trade and the Trump trade have some common elements, but they also have some opposing elements.  Here is a summary of the Bessent trade:
  • Buy stocks, especially financial stocks and highly speculative stocks.
  • Buy bonds.  Yields are falling across the board. 
  • Sell the dollar.  
  • Sell gold and silver.
  • Sell oil.
  • Moderating manic buying in cryptos, including bitcoin.  There are always crosscurrents.  Michael Saylor, CEO of Microstrategy, is indicating that Microstrategy will be buying bitcoin today from the $3B raised from a bond sale.
• Consumer confidence data will be released at 10am ET.  In The Arora Report analysis, consumer confidence has risen after Trump's re-election.  The consensus is 113.  Expect the stock market to react positively to the number irrespective of what it comes at because of the extreme positive sentiment.  When market sentiment is at an extreme positive, the stock market goes up even on bad news.  
• FOMC minutes will be released at 2pm ET.  In The Arora Report analysis, the minutes are not likely to show any surprise, and as such, the market reaction may be muted.   

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, Microsoft Corp MSFT, and Tesla Inc TSLA.

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

In the early trade, money flows are positive 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 range bound. 

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  The proprietary protection band from The Arora Report is very popular.  The protection band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors. 

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.