Power For AI Exuberance Reaches Fever Pitch – Quanta Breaks Out; Copper And Oil Rise On Chinese Move

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

AI Exuberance

Please click here for an enlarged chart of Quanta Services Inc PWR.

Note the following:

• This article is about the big picture, not an individual stock.  The chart of PWR stock is being used to illustrate the point.
• Artificial intelligence data centers are power hungry.  In the stock market, exuberance for stocks that help power AI data centers has reached a fever pitch.
• The chart shows PWR stock has broken out.  Quanta Services is a major contractor for utilities.
• Volume on the chart shows that the volume on the breakout was higher than the recent volume, but not as high as it should have been to generate high conviction in the breakout.
• RSI on the chart shows that PWR stock is very overbought.
• The technical breakout is bringing in aggressive buying in PWR stock from investors who trade only on technicals.
• The momo crowd is aggressively buying PWR stock.
• As full disclosure, PWR stock is in The Arora Report’s ZYX Buy Core Model Portfolio.  The Arora Report is long from $37. 
• From a valuation perspective, PWR stock is now expensive.  It is trading at a trailing PE of 56 and a forward PE of 29.
• Yesterday, we shared with readers about China:

Central Bank Governor Pan Gongsheng will hold a conference tomorrow.

• China is making a big move.
  • People's Bank of China (PBC) is lowering its reserve requirement ratio by 50 basis points.
  • The bank has lowered its seven day repurchase rate by 20 basis points.
  • The bank may soon lower its prime rate.
  • The down payment requirement for second homes has been lowered to 15% from 25%.
• Chinese stocks are jumping.  Stocks in Hong Kong jumped 4.1% and 4.2% in Shanghai.
• Investors in the U.S. should not underestimate the impact of these moves in China.  The moves are generating position sentiment.
• Copper, steel, oil, and other commodities are moving up on the China moves.
• As full disclosure, Copper stock Freeport-McMoRan Inc FCX is in The Arora Report’s ZYX Buy Core Model Portfolio.  The Arora Report also has a short term trade on oil ETF United States Oil ETF USO.
• The Conference Board's consumer confidence data will be released at 10am ET and may be market moving.

Magnificent Seven Money Flows

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

In the early trade, money flows are neutral in Alphabet Inc Class C GOOG, Microsoft Corp MSFT, Meta Platforms Inc META, and NVIDIA Corp NVDA.

In the early trade, money flows are negative in Amazon.com, Inc. AMZN.

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

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 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 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.