Aggressive Stock Buying On Rising Layoffs And Revenue Rise At The Largest Chip Manufacturer TSMC

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

Buying On Rising Layoffs

Please click here for an enlarged chart of SPDR S&P 500 ETF Trust SPY which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• The chart shows that the stock market has vigorously risen from the recent pullback.
• The chart shows that RSI reached oversold levels during the recent pullback and now has risen to touch the lower band of the overbought zone.  Historically, this setup leads to more stock market gains.
• The chart shows that the volume during the recent rise is not heavy.  This indicates lack of conviction.
• The chart shows that the stock market is now in the resistance zone.
• In The Arora Report analysis, stops of the short sellers are right above the resistance zone.  If the stock market rises further, Wall Street’s hunt and destroy algorithms will kick in, taking out the stops of short sellers and igniting a short squeeze. The result of such a scenario would be a new stock market high.  
• Yesterday in the Morning Capsule we shared with you:

Jobless claims came at 231K vs. 213K consensus. This indicates that the job market is beginning to slow.

• The bulls latched on to the rise in jobless claims and aggressively bought stocks. There is merit to this line of thinking because Powell is already itching to cut rates and rising layoffs will give him an excuse to cut rates.
• Prudent investors need to be somewhat careful as weekly jobless claims series is very volatile.
• For proper analysis at The Arora Report, in addition to the weekly data, we look at a four week moving average of initial jobless claims.  The four week moving average is now at 215K – up 2.26% from the prior week and down 10.14% from a year ago.  Considering the size of the U.S. economy, a rise of 2.26% over the prior week is hardly meaningful, but do not tell that to trigger happy stock market bulls.  Prudent investors should watch the trend over a period of several weeks, not just one week. Jobless claims is a leading indicator and carries heavy weight in The Arora Report adaptive ZYX Asset Allocation Model with inputs in ten categories. In plain English, adaptiveness means that the model changes itself with market conditions.  Please click here to see how this is achieved. One of the reasons behind The Arora Report’s unrivaled performance in both bull and bear markets is the adaptiveness of the model. Most models on Wall Street are static. They work for a while and then stop working when market conditions change.
• Adding to the optimism this morning is a report of rising revenues at the world’s largest chip manufacturer Taiwan Semiconductor Mfg. Co. Ltd. TSM. TSM is manufacturing a vast majority of the artificial intelligence chips, and the data shows sales are booming.  Here are the details:
  • April revenues came at T$236.02B.  This is up 59.6% year-over-year and up 21% month-over-month.
  • January - April revenue came at T$828.67B. This is 26% year-over-year.
• Data from TSM is bringing buying into artificial intelligence stocks such as NVIDIA Corp NVDA, Advanced Micro Devices, Inc. AMD, Micron Technology Inc MU, and Applied Materials, Inc. AMAT.

China

Stocks in Hong Kong have reached a nine month high. There is China risk, but stocks in Hong Kong represent the best value in the whole world at this time. The ETF of choice is iShares China Large-Cap ETF FXI. As full disclosure, FXI is in The Arora Report's ZYX Emerging Model Portfolio.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc AAPL, Meta Platforms Inc META, NVDA, and Tesla Inc TSLA.

In the early trade, money flows are neutral in Amazon.com, Inc. AMZN and Microsoft Corp MSFT.

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

In the early trade, money flows are positive in S&P 500 ETF (SPY) and Invesco QQQ Trust Series 1 QQQ.

Momo Crowd And Smart Money In Stocks

The momo crowd is aggressively buying stocks in the early trade. Smart money is inactive 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. 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 is rising along with tech stocks.

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.

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 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.