A Great Strategy For Investing In Artificial Intelligence, Rates Higher For Longer

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

Picks And Shovels Strategy

Please click here for an enlarged chart of Applied Materials, Inc. AMAT.

Note the following:

• This article is about the big picture, not an individual stock. The chart of AMAT stock is being used to illustrate the point.
• One of the best strategies to profit from artificial intelligence is the picks and shovels strategy. Picks and shovels is one of 50 strategies utilized by The Arora Report. 
• Semiconductor equipment manufacturer Applied Materials belongs to the picks and shovels strategy.
• The chart shows that the stock pulled back after the company reported earnings.
• The chart shows the pullback also happened when the company reported earnings for the prior quarter. The reason for pullbacks after earnings in this case is that whisper numbers moved too high prior to the earnings, and the momo crowd aggressively bought prior to earnings. This pattern is extending to many important stocks.
• If there is a bigger pullback in AMAT, it will be a buying opportunity.
• AMAT earnings were good. Here are the details:
  • Q2 earnings came at $2.09 vs. $1.99 consensus.
  • Q2 revenues came at $6.65B vs. $6.54B consensus.
  • AMAT projects Q3 EPS of $1.83 - $2.19 vs. $1.98 consensus.
  • AMAT project Q3 revenues of $6.25 - $7.05B vs. $6.59B consensus.
• As full disclosure, AMAT is in The Arora Report's ZYX Buy Model Portfolio. It is long from $16.  
• Three Fed officials, Barkin, Williams, and Mester, say there is no rush to cut interest rates as it is taking longer to cool inflation.

China

China is undertaking the most ambitious plan yet to reverse declining home prices. The People’s Bank of China will provide $41.5B to help Chinese state owned companies to buy unsold homes. This is generating optimism.

Magnificent Seven Money Flows

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

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

In the early trade, money flows are negative in Meta Platforms Inc META and Tesla Inc 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 inactive in the early trade.

Note for new members: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very, very short term trades, consider following the momo crowd and not smart money.

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 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.

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.