Pay Attention: A Major Risk Event Is Ahead – Nvidia Earnings

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

Nvidia Earnings Ahead

Please click here for an enlarged version of the chart of Nvidia stock NVDA. 

Note the following:

• The Morning Capsule is about the big picture, not an individual stock. The chart of NVDA stock is being used to illustrate the point.
• NVDA is the best performing large stock as NVDA is at the center of the AI revolution.
• The chart shows a breakout on January 8, 2024.
• The chart shows the very steep trendline since the breakout.
• The chart shows the buying frenzy in NVDA stock.
• The chart shows that since the breakout, NVDA stock has moved up 45.2% in a very short time.
• The move up in the stock market in 2024 is the result of two events.
  • AI frenzy led by NVDA stock
  • Momo gurus’ narrative of six rate cuts in 2024, starting in March. The Arora Report repeatedly cautioned you against believing in the momo gurus’ narrative of interest rate cuts. Now it is clear that momo gurus have been wrong on their interest rate cut projections.
• The Arora Report call on AI has been very positive. Our call originally was that a fortune was to be made over seven years. That call was made over a year ago.  So far, that call has been spot on.
• When one stock, such as NVDA, becomes responsible for a large part of the move of the entire stock market and for the extreme positive sentiment, it is important to pay attention to the earnings of the stock.
• NVDA reports earnings on February 21. The consensus for NVDA earnings is $4.56. The consensus for revenue is $20.32B.
• Less informed investors do not understand that stocks do not move based on published consensus earnings and revenue estimates. Stocks move based on whisper numbers. Whisper numbers are the numbers that analysts share privately, only with their best clients.  The whisper numbers for NVDA are at $5 for earnings and $22B for revenue.  
• Sentiment in NVDA is at extreme positive. Here is the most often asked question, “I don’t own NVDA. Should I buy it now?” Typically, investors answer the question themselves. They cannot stand that they do not own NVDA, so they jump in with both feet to buy it now. This is the same pattern that the same investors showed when TSLA was trading at a much higher price.
• NVDA earnings will determine the near term course of the stock market. 
• This morning there is aggressive buying in junk stocks and penny stocks.
• 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, Alphabet Inc Class C GOOG, Meta Platforms Inc META, Microsoft Corp MSFT, NVIDIA Corp, and Tesla Inc TSLA.

In the early trade, money flows are neutral in  Apple Inc AAPL.

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

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

Gold

The momo crowd is selling 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

API crude inventories came at a build of 8.52M barrels vs. a consensus of a build of 2.6M barrels.

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

Positive sentiment from aggressive buying in penny stocks and junk tech stocks is shifting to bitcoin BTC/USD, moving it higher. Bitcoin futures have just crossed $52,000.

Bitcoin miners are seeing aggressive buying.

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.

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 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.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.