AMD Chart Highly Instructive For Investors, Google's AI Monetization, Apple Not Immune In China

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

Instructive Chart

Please click here for an enlarged chart of Advanced Micro Devices Inc AMD.  Note the following:

• This article is about the big picture, not an individual stock.  The chart of AMD is being used to illustrate the point.
• The AMD chart is highly instructive for investors.  The chart shows that from late 2023 to early 2024, the momo crowd was running up AMD stock, causing it to more than double.
• We previously shared with you that AMD was not suitable for investing, but AMD was suitable for trading and have given signals as such.
• The chart shows that AMD stock has dropped from a high of $227.30 to $107.67 as of this writing in the premarket.
• Prudent investors should note from the chart how fast the move up was in AMD stock and how slow the move down has been.  The move up was so fast because the momo crowd could not differentiate between AMD and NVIDIA Corp (NVDA). To the momo crowd, Advanced Micro Devices made GPUs and so did Nvidia. 
  • Nvidia's chips were way more advanced than Advanced Micro Devices' chips for AI applications.
  • The biggest demand for GPUs was coming from large language model training.  The capabilities needed were in Nvidia's chips, not in Advanced Micro Devices' chips.
  • Nvidia had developed a strong software moat, and Advanced Micro Devices was far behind in software.
• The momo crowd has continued to aggressively buy AMD stock during the entire period the stock has been moving downward.    The anecdotal evidence is that for many in the momo crowd, AMD stock is over 50% of their portfolio. 
• The chart shows volume was high yesterday prior to the report of earnings.  The reason for the high volume was the momo crowd was aggressively buying AMD stock with conviction ahead of earnings.
• The chart shows AMD stock took another leg down after reporting earnings yesterday after hours.
• Based on the historical precedence of the momo crowd's behavior, at some point in the future, the momo crowd will panic and sell AMD stock.  At that time, The Arora Report is likely to give a buy signal to take advantage of the dip caused by the momo crowd panicking.
• Here are the important takeaways for investors from the AMD chart.
  • Just like AMD stock ran up without proper analysis, many popular stocks have run up way above reason.  The prices of these stocks are totally divorced from reality.  Examples include quantum computing stocks such as Arqit Quantum Inc (ARQQ), IONQ Inc (IONQ), Sealsq Corp (LAES), D-Wave Quantum Inc (QBTS), Quantum Computing Inc (QUBT), Rigetti Computing Inc (RGTI), and Wisekey International Holding AG – ADR (WKEY).
  • Investors need to differentiate between investing and trading.  For example, right now, it is appropriate to only trade quantum stocks but due to quantum computing stocks being divorced from reality, they are not appropriate for investing at this time.
  • Next time you experience FOMO, remember this chart of AMD stock.
• In the early trade, tech stocks are seeing selling on earnings from Advanced Micro Devices and Alphabet.  Investors are beginning to realize Google has an AI monetization problem.  Earnings show that Google Cloud growth is slower than expected, but Google is ramping up CapEx over $20B more than expected.
• Wall Street had continued to believe that Apple Inc (AAPL) was immune from any government action in China.  To the contrary, The Arora Report has been warning that there is a China risk in Apple. After Trump imposed tariffs on China, the Chinese government is starting the process of a potential investigation of how Apple charges app developers.
• In an important development, the Treasury announced  $125B of securities, from 3 year to 30 year, to refund approximately $106B Treasuries maturing on February 15.  So far, the stock market likes this development, and there is aggressive buying on this news.
• Factory orders came at -0.9% vs. -0.3% consensus, indicating manufacturing is slowing.
• There is conflicting data on the jobs picture.
  • JOLTS report came at 7.6M vs. 8.156M prior.
  • ADP is the largest payroll processor in the country and uses its data to give an advanced glimpse of the jobs picture ahead of the official jobs report.  ADP payrolls came at 183K vs. 155K consensus.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Nvidia (NVDA).

In the early trade, money flows are negative in Amazon.com, Inc. (AMZN), Alphabet Inc Class C (GOOG), Meta Platforms Inc (META), Microsoft Corp (MSFT), NVIDIA (NVDA), Tesla Inc (TSLA), and Apple (AAPL).

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 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.  The proprietary protection band from The Arora Report is very popular.  The protection band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.

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.