Stock Buying Ahead Of Nvidia Earnings On Potential Tax Cuts And Large Medicaid Cuts

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

King Nvidia Earnings Ahead

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

Note the following:

• This article is about the big picture, not about an individual stock.  The chart of NVDA stock is being used to illustrate the point.
• The chart shows NVDA stock is below the resistance zone.
• RSI on the chart shows NVDA stock is neither overbought nor oversold.
• The chart shows a nicely profitable recently completed trade around position on NVDA based on Arora signals.  The NVDA trade around position was separate and distinct from the core NVDA position that is being held for $12.55.
• Nvidia will report earnings today after the close.  Nvidia earnings have the potential to move the stock market in either direction.  At The Arora Report, we will be carefully listening for future demand.
• The momo crowd is ignoring the potential risk to the downside and buying stocks ahead of Nvidia earnings.
• The House has passed a plan for the budget.  Here are the key points:
  • The plan calls for $1.5T – $2T in spending cuts over a decade.
  • The plan calls for $4T – $4.5T in tax cuts.
  • The plan calls for large cuts in Medicaid.  Medicaid is a safety net health insurance program for low income people.
  • The stage is set for a showdown with the Senate.  Senate Republicans want larger tax cuts.
• The passage of the bill is generating excitement among investors, and they are aggressively buying stocks.  As heartless as it sounds, irrespective of your opinion, in the early trade, there is aggressive buying in the stock market for two reasons:
  • Higher income people will benefit more from tax cuts.  It is the higher income people who invest in stocks.
  • Lower income people who are on Medicaid will be adversely affected, but they are much less likely to invest in stocks.
• Adding to the buying is news from China.  Please see the section below.
• Copper prices are moving higher on Trump's plan for tariffs on copper.

China

China is injecting $55B into its largest banks.  The purpose is to increase lending and spur the economy.  Foreign money is flowing into Chinese stocks.

Magnificent Seven Money Flows

In the early trade, money flows are positive in 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 Apple Inc (AAPL).

In the early trade, money flows are positive 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 seeing selling pressure.

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.