Apple, Google, And Tesla Help Sentiment, As Tech Stocks Approach Pre-Liberation Day Close

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

Sentiment Boost

Please click here for an enlarged chart of Invesco QQQ Trust Series 1 QQQ.

Note the following:

• The chart shows that the blistering rally yesterday brought tech stocks close to the pre-Liberation Day close.
• The pre-Liberation Day close is shown on the chart in cyan.
• In our analysis, a big part of the blistering rally shown on the chart yesterday was a short squeeze.
• Our algorithms are showing that this leg of the short squeeze is near an end.  Unless there is a new leg of short squeeze or new news, tech stocks may pull back.  
• Here is the key question for prudent investors: As tech stocks recover most of the losses since Liberation Day, have the macro risks also proportionately returned to the same levels as pre-Liberation Day?
• The answer to the above question is the macro risks are much higher now than before Liberation Day.
• Helping the sentiment in tech stocks is news from Apple Inc (AAPL), Alphabet Inc Class C (GOOG), and Tesla Inc (TSLA).
  • Apple is going to produce most iPhones in India by 2026.  In our analysis, the stock market is only focused on the positive aspects here, but ignoring that about 20% of Apple sales in China are now at a higher risk – Apple is infuriating China by moving production to India.
  • Alphabet reported earnings better than the consensus and whisper numbers. Most important is that profits from search advertising have held up.  Right now, investors are focused on the positives, but ignoring that Google's search market share has decreased.  The market is ignoring the threat Google search faces from the likes of ChatGPT.  The anecdotal evidence is that more educated people are using Google less and AI chatbots more.  Google is making some progress with its own AI chatbot but not enough to offset the existential threat.
  • The U.S. will relax some self-driving regulations that Tesla CEO Elon Musk has criticized.  This will be helpful to Tesla.
• Positive for AI stocks such as NVIDIA Corp (NVDA), Advanced Micro Devices, Inc. (AMD), Vertiv Holdings Co (VRT), Marvell Technology Inc (MRVL), Broadcom Inc (AVGO), and Super Micro Computer Inc (SMCI) is that Google is indicating a capex of $75B for FY25.
• On the negative side, Intel Corp (INTC) guides Q2 below consensus after reporting better than consensus earnings and revenues for Q1.
• On the trade front, there are two positive developments:
  • Both the U.S. and India are working towards India potentially being the first country to sign a trade deal.
  • Trade progress has been made with South Korea, and South Korea may be right behind India with a trade deal.
• A big part of the rally yesterday was President Trump saying he had talks with China.  President Trump refused to say who the talks were with and what was discussed.  However, China has denied that it is in talks with the U.S.  The stock market believed President Trump and ignored China's denial.
• The Chinese embassy has just come out stating that there are no tariff talks with the U.S. and the U.S. should stop creating confusion.  
• Adding to the positive sentiment this morning is that China may exempt some important U.S. goods from tariffs.  The reason appears to be economic as the cost of some of these goods have risen too much.

A New War Risk

India claims that a terrorist attack in the state of Kashmir was carried out by Pakistanis with support from Pakistan’s government.  Pakistan denies the claim.

Among other measures, India has put the Indus Waters Treaty in abeyance.  The treaty governs how water is distributed from the rivers that flow through India to Pakistan.

India has taken an unprecedented step.  In the past, even during times of war between the two countries, India did not suspend the Indus Waters Treaty.

Investors need to keep in mind that both India and Pakistan possess substantial nuclear arsenals.

Even though the stock market is oblivious at this time, the situation has the potential to increase global risk.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Meta Platforms Inc (META), Amazon.com, Inc. (AMZN), NVDA, GOOG, and TSLA.

In the early trade, money flows are negative in Microsoft Corp (MSFT) and AAPL.

In the early trade, money flows are negative in SPDR S&P 500 ETF Trust (SPY) and Nasdaq 100 ETF (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 buying. There is a new narrative developing – bitcoin is low beta when tech stocks go down and a higher beta when tech stocks go up.  The recent data supports this narrative.  In our analysis, if this data holds up going forward, it will be positive for bitcoin.  

Arora Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  Our proprietary 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.