Nvidia And Gamma Squeeze Overpower Hotter Inflation Data

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

AI Frenzy

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

Note the following:

• QQQ is above the trendline shown on the chart.
• The chart shows that QQQ ran up in spite of hotter inflation data. Yesterday, gamma squeeze and AI frenzy completely overpowered inflation data that was negative for the stock market.
• Prudent investors know the market cannot ignore inflation forever. While the stock market and the economy are not the same thing, they can not be completely divorced from one another.
• As long as QQQ stays above the trendline shown on the chart, the rapidly increasing YOLO (you only live once) behavior in the stock market will continue. In YOLO behavior, investors give up any notion of risk.
• The chart shows that if QQQ starts pulling back, the major support zone is far off.
• Oracle Corp ORCL earnings indicated there is a strong demand for NVIDIA Corp NVDA chips.
• NVDA stock ran up on Oracle earnings, which pulled up other AI stocks and led the market higher.
• Quadruple witching is this Friday. Quadruple witching is to the upside.
• The incessant call buying by the momo crowd is leading to a gamma squeeze, putting upward pressure on the stock market. Gamma squeeze is an important market mechanic. Understanding gamma squeeze can give investors an edge.
• NVDA has now totally replaced Tesla Inc TSLA as the momo crowd’s favorite stock. The momo crowd is selling TSLA and buying NVDA.
• The next major trigger for the stock market will be the Nvidia GTC event that starts on March 18.
• The momo crowd is caught up in the AI frenzy to such a large extent that the momo crowd has decided inflation does not matter anymore.
• Of note is that as the stock market runs up, smart money is trimming positions. This is common smart money behavior to trim into the strength and buy into the weakness.  In contrast, the momo crowd buys when the stock market runs up and sells when the stock market weakens and they cannot withstand their losses.   
• Important economic data will be released tomorrow and may be market moving.
  • Producer Price Index (PPI)
  • Retail Sales
  • Initial Jobless Claims
• 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 Microsoft Corp MSFT.

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

In the early trade, money flows are negative in Alphabet Inc Class C GOOG, NVDA, and TSLA.

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

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

Gold

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, and the most popular ETF for silver is iShares Silver Trust SLV. 

Oil

API crude inventories came at a draw of 5.521M barrels vs. a consensus of a build of 0.400M barrels. This data is very bullish for 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 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.

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.