Stocks Running Up On Momo Buying And Short Squeezes With Only Air Underneath, Powell Testimony

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

Beware Of Air 

Please click here for an enlarged chart of Semtech Corp (SMTC).

Note the following:

• This article is about the big picture, not an individual stock.  The chart of SMTC is being used to illustrate the point.
• Many stocks are running up on the momo crowd buying, and short squeezes with only air underneath the stocks.
• Aggressive momo crowd buying is levitating many stocks to a level completely divorced from reality.  Short sellers see this as an opportunity to short the stocks.  The momo crowd continues to buy these stocks.  Short sellers are forced to buy to cover, leading to upward pressure.  Short squeezes result in technical breakouts; investors who invest mostly with technical analysis then jump in.  The momo crowd buys more.  The cycle repeats itself again and again, driving many stocks higher and higher.
• When stocks run up in the above described manner, there is only air below them.
• The chart of SMTC illustrates the point.  Semtech is a provider of analog and mixed-signal semiconductors and communication solutions.
• The chart shows when SMTC stock ran up on earnings.  To The Arora Report and anyone who understands rack architecture, it was obvious that the increase in earnings in November 2024 was temporary due to Semtech's CopperEdge product being included in NVIDIA Corp (NVDA) stack.   At The Arora Report, we quickly concluded that the likely changes in Nvidia's server rack architecture did not justify the aggressive buying of SMTC stock.  The momo crowd continued to buy SMTC stock.
• The chart shows that the stock dropped on earnings in February as the company announced what was obvious not only to The Arora Report but to any investor who did proper analysis.
• The chart shows that the drop in SMTC stock is on high volume, indicating that the momo crowd feels trapped and is panicking and selling SMTC stock.
• For most stocks, it is not as clear cut as SMTC, and the stocks continue to run. Prudent investors need to know that there is only air underneath them.  It is difficult to short stocks like SMTC due to short squeezes.
• Fed Chair Powell will appear before the Senate today and the House on Wednesday.  Powell is going to be in a difficult spot – Republicans are going to try very hard to have Powell agree with President Trump's policies and Democrats are going to try very hard to have Powell say something against Trump's policies.  The consensus is that Powell will not take sides.  What Powell says, especially during Q&A, may be market moving.  The prepared text of Powell's opening statement is expected to be released prior to the testimony.
• This morning, there is some selling in the early trade as many investors are concerned about the impact of reciprocal tariffs that Trump may impose.  On the positive side, the momo crowd continues to buy.
• Trump is warning that tariffs on steel and aluminum can go higher than the present 25%.
• Investors are anxiously waiting for the Consumer Price Index (CPI), which will be released tomorrow at 8:30am ET.

Magnificent Seven Money Flows

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