Stock Market Rebounds To Resistance Zone, AMD's AI Strategy To Compete With Nvidia

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

Stock Market At Resistance

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 touched the low band of the support zone during the carry trade related drop.
• The chart shows that the stock market has aggressively rebounded after touching the low band of the support zone.
• The chart shows that the stock market is now touching the low band of the resistance zone.
• The momo crowd appears to be oblivious to the resistance zone and aggressively buying. However, smart money's pattern is to trim when the stock market is in the resistance zone.
• RSI on the chart shows that the stock market is overbought. In spite of aggressive momo crowd buying, overbought markets tend to be vulnerable to a pullback.
• The most important event this week is Fed Chair Powell's speech at Jackson Hole on Friday.
• Chicago Fed President Austan Goolsbee is cautious against inflation arguments from both Trump and Harris.
  • Trump plans to increase tariffs. However, Goolsbee said that while tariffs increase inflation such increase is not prolonged.
  • Harris proposes to ban price gouging in food and grocery.  Goolsbee said that high prices are not due solely to price gouging.  In an interview, Goolsbee is careful not to take sides.
• NVIDIA Corp NVDA stock has been the leader driving the AI frenzy. Advanced Micro Devices, Inc. AMD has been trying to catch up but is far behind.  To strengthen its AI strategy, AMD is acquiring ZT Systems for $4.9B.  ZT Systems designs and optimizes cloud computing solutions. ZT Systems will help AMD deploy AMD powered infrastructure at scale.
  • The media headlines about AMD competing with NVDA are highly misleading.  In The Arora Report analysis, AMD buying ZT Systems is only a very small step and will not meaningfully impact Nvidia's market share.
  • Without a deep understanding, the momo crowd is aggressively buying AMD stock on the news.
• Layoffs in IT continue to expand. General Motors Co GM is planning to cut 1,000 software jobs.  Last week, Cisco Systems Inc CSCO, the networking giant, announced 4,000 job cuts.
• There has been a lot of concern about Mpox. Mpox is now spreading beyond Africa. The latest expert analysis is that Mpox will not have a severe impact in the U.S. However, prudent investors should keep a close eye on the spread of Mpox.

Magnificent Seven Money Flows

In the early trade, money flows are positive in NVDA, Apple Inc AAPL, Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Microsoft Corp MSFT, and Tesla Inc TSLA.

In the early trade, money flows are neutral in Meta Platforms Inc META.

In the early trade, money flows are mixed in SPY and Invesco QQQ Trust Series 1 QQQ.

Momo Crowd And Smart Money In Stocks

Investors can gain an edge by knowing money flows in SPY and QQQ. Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil.  The most popular ETF for gold is SPDR Gold Trust GLD. The most popular ETF for silver is iShares Silver Trust SLV. The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD is below $60,000. There is a disappointment that bitcoin whales did not take advantage of low liquidity during the weekend to run up bitcoin.

Normally, buying in bitcoin and buying in speculative stocks go together. However, recently a disconnect developed between the two.  The disconnect continues to persist in the early trade.

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 five 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.