Hedges Are Profitable, Semiconductors Stabilizing After 17% Drop

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

Hedges Are Profitable

The Arora Report gave several signals to put hedges on to protect large profits on long-term positions. Hedges are now profitable. It is time to book partial profits on some hedges.  

Semiconductors Stabilizing After 17% Drop 

Please click here for an enlarged chart of semiconductor ETF SMH.

Note the following:

• Historically, semiconductors are the leading sector. Often semiconductors move first and then the rest of the market follows.
• This time, there has been an additional factor – semiconductors have been at the center of the AI revolution.
• The chart shows semiconductors have had a massive run. As full disclosure, The Arora Report's ZYX Allocation Core Model Portfolio has a large allocation to semiconductors, up to 16% of the portfolio.
• The chart shows when the Arora signal was given to take partial profits close to the top.
• The chart shows semiconductors dropped 17% from the top.
• The chart shows semiconductors are attempting to stabilize at the microsupport zone.
• The chart shows RSI is oversold. Oversold RSI often, but not always, leads to a bounce.
• Among the earnings, there are two notable earnings.
  • General Motors Co GM reported earnings significantly better than the whisper numbers. This indicates that in spite of high interest rates, consumers feel secure enough to buy new cars.
  • Cadence Design Systems Inc CDNS is a leading provider of semiconductor design software. CDNS stock has run up due to the AI frenzy. The presumption has been that as chips become more complex, CDNS will benefit.  CDNS guidance is below expectations. This indicates that the momo crowd euphoria about AI is overdone.  As full disclosure, CDNS is one of 18 stocks on the Arora Artificial Intelligence List.  
• In the short term, the course of the stock market will depend on earnings from Tesla Inc TSLA, Meta Platforms Inc META, Microsoft Corp MSFT, Alphabet Inc Class C GOOG, and Alphabet Inc Class A GOOGL.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc. AMZN, Alphabet (GOOG), Meta (META), NVIDIA Corp NVDA, Microsoft (MSFT), and Tesla (TSLA).

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

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 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

The momo crowd is selling 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. Bitcoin bulls are disappointed that bitcoin is not running up immediately after the halving. 

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.