Nvidia Traces A Bearish Pattern – Hedging Right At The Top, Central Banks Buy Gold

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

Negative Nvidia Pattern

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

Note the following:

• This article is about the big picture, not an individual stock. The chart of NVDA is being used to illustrate the point. As a full disclosure, NVDA stock is in The Arora Report ZYX Buy Core Model Portfolio.
• The chart shows that NVDA stock has traced an outside day. An outside day is a reversal pattern in traditional technical analysis.
• The chart shows that The Arora Report gave a signal to partially hedge the NVDA position when NVDA was trading at $952.74, right near the very top. Since the signal to hedge NVDA stock, NVDA has lost about $250B worth of value. 
• The chart shows that NVDA is long from $125.51 when NVDA stock fell in the Arora buy zone shown on the left side of the chart.
• The chart shows that the reversal pattern in NVDA stock was on heavy volume. This is negative.
• Nvidia is important for the following reasons.
  • Nvidia is the center of the artificial intelligence revolution.
  • Nvidia has been the best performing large cap tech stock.
  • About one third of S&P 500 performance is due to Nvidia.
  • Nvidia has become the favorite of the momo crowd, replacing Tesla Inc TSLA.
  • Nvidia usually has the most option volume on the call side, indicating the YOLO (you only live once) mentality that has seeped into the stock market.
• The move in NVDA stock is actively impacting the entire semiconductor sector. As The Arora Report has written before, semiconductors are the leading sector. As a full disclosure, VanEck Semiconductor ETF SMH is in The Arora Report ZYX Allocation Core Model Portfolio.  Readers and members of The Arora Report had an advanced notice that semiconductors may fall from the signal given in ZYX Allocation to take partial profits in semiconductor ETF SMH just prior to the drop. That Arora signal has now proven spot on.
• The next major event ahead is CPI data that will be released tomorrow morning at 8:30am ET. The consensus is 0.3% for both the headline and the core. However, whisper numbers are lower as Wall Street believes that inflation has dramatically slowed down.
  • CPI data will be a major test of the extreme positive sentiment that has prevailed on Wall Street.
  • As we have previously written, extreme positive sentiment is a contrary signal, but it is not a precise timing signal.
• Expect momo gurus to come up with new narratives to buy the dip in NVDA and other semiconductor stocks. Prudent investors who pay attention to not only rewards but also risks may consider waiting for Arora buy zones.
• Quadruple witching is ahead on Friday and often leads to volatility. In quadruple witching, stock index futures, futures options, stock options, and single stock futures expire.
• 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.

Japan

The Japanese stock market experienced a major sell off after making new highs. Of course, members and readers of The Arora Report had advanced notice. Last week, a signal was given to take partial profits on Japan ETF EWJ in ZYX Allocation prior to the drop in the Japanese stock market.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc AAPL, Alphabet Inc Class C GOOG, and TSLA.

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

In the early trade, money flows are negative 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 selling stocks in the early trade.

Gold

Central banks are buying gold. Central banks of China, India, and Turkey bought 30 metric tons of gold in January.  

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 has moved above $72,000. Two pieces of news are helping.

• One is the London Stock Exchange will allow applications for bitcoin and ethereum ETNs. British regulators say that bitcoin is not suitable for retail investors. For this reason, they will allow the ETNs only for professionals.
• The second piece of news is that MicroStrategy Inc MSTR is buying an additional 12,000 bitcoin for $821.7M cash.

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 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.