Nvidia Earnings And Jackson Hole Hopium Driving Stock Market Higher But Market Is Overbought

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

Overbought Stock Market

Please click here for an enlarged chart of NVIDIA Corp NVDA.

Note the following:

• This article is about the big picture, not an individual stock.  The chart of NVDA stock is being used to illustrate the point.
• The chart shows that NVDA stock hit the bottom of the support zone during the carry trade crash.
• The chart shows relentless buying in NVDA since it hit the bottom of the support zone.
• The chart shows that NVDA is now approaching the resistance zone.
• The most important observation from the chart is RSI.  RSI shows that NVDA stock is now very overbought.
• Not only is NVDA stock overbought, the entire stock market is overbought.
• There are two factors driving the stock market higher.
  • Nvidia earnings hopium.  Nvidia will release earnings on August 28.
  • Jackson Hole hopium.  Powell will be speaking at Jackson Hole on Friday.
• Sometimes overbought markets become more overbought.  However, at this time prudent investors should pay attention to the Arora rule of being very careful in markets that are this overbought. When you follow this rule over a long period of time, you come out ahead.
• If the stock market rises again today, it will be on the longest winning streak since 2004.
• Sweden's Riksbank cut its rate to 3.5% and projects three more rate cuts this year.  Sweden often leads other central banks.

Magnificent Seven Money Flows

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

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

In the early trade, money flows are negative in SPDR S&P 500 ETF Trust 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 has moved up over $60,000 on Jackson Hole hopium.

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.