Folding Apple iPhone, Sellers Finally Come In AI King NVIDIA As Sentiment Stays At Extreme

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

Folding Apple iPhone

Apple Inc AAPL is apparently working on two folding iPhones. Samsung Electronics Co Ltd SSNLF folding smartphones have been very popular. AAPL stock carries a very heavy weight in indexes. In the early trade, there is significant buying in AAPL stock. The speculation of folding phones from Apple is adding to the already extreme positive sentiment in the stock market. 

Extreme Sentiment

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

Note the following:

• The Morning Capsule is about the big picture, not an individual stock. The chart of NVDA stock is being used to illustrate the point.  
• Nvidia is the king of artificial intelligence and one of the top performing stocks. For this reason, it is important to pay attention to Nvidia. 
• The chart shows when the AI buying frenzy in NVDA stock reached a peak three days ago. 
• Three days ago, after hours NVDA stock went above the psychologically important level of $700 and went higher the next day in the premarket.    
• The red candle shown on the chart the next day shows heavy selling. This indicates that many market participants believe that the stock market top is not too far off. 
• The chart shows that the move up was on high volume. A move up on high volume indicates bulls’ conviction.  
• The chart shows that on the day of the red candle, the volume was again very high.  This indicates high conviction on the part of those who think the top is near. 
• In The Arora Report analysis, based on analysis of money flows, as of this writing in the premarket bulls and bears in NVDA stock are in balance. This is the first time they have been in balance since the start of the AI frenzy. 
• The chart shows RSI divergence. This means NVDA stock is losing internal momentum in the very short term.  
• The sum total of the foregoing is an early caution signal.
• The sentiment in the stock market remains at extreme positive.
  • At extremes, sentiment is a contrary indicator. In plain English this means that extreme positive sentiment is a sell signal.
  • Sentiment is not a precise timing indicator.
  • As important as sentiment is, no one should act only on sentiment. Investors should do a 360 degree analysis, such as the one provided by the adaptive ZYX Asset Allocation Model with inputs in ten categories.
• The Fed speak yesterday pushed back against market expectations of six rate cuts this year. The following quote from Fed President Mester is instructive for investors, “If the economy evolves as expected, I think we will gain that confidence later this year, and then we can begin moving rates down. My base case is that we will do so at a gradual pace so that we can continue to manage the risks to both sides of our mandate.”
• There is more Fed speak today from the Fed’s Patrick Harker, Adriana Kugler, Susan Collins, Tom Barkin, and Michelle Bowman. The Fed speak may be market moving.  
• As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the protection band. 

Commercial Real Estate Problems

You may remember the banking crisis when Silicon Valley Bank, First Republic, and Signature Bank went bankrupt in March 2023. Since then, there has been a massive rally in the stocks of regional banks on hopium. Serious commercial real estate loan problems remain. In The Arora Report analysis, prudent investors need to be alert to real estate loan problems.  

Moody’s has just cut New York Community Bancorp, Inc. NYCB to junk status. Only six days ago, NYCB was considered a solid, well-managed bank. The bank was so respected that last year FDCI chose NYCB to buy the assets of Signature Bank. In the last six days, NYCB stock has fallen from above $10 to the $4 range.  

China

In a surprise move, China has replaced its top stock market regulator. The new regulator is Wu Qing, a respected banker.  In The Arora Report analysis, this surprise move is an attempt by President Xi to move the Chinese stock market higher.  

Magnificent Seven Money Flows

In the early trade, money flows are positive in AAPL, Alphabet Inc Class C GOOG, Meta Platforms Inc META, Microsoft Corp MSFT, and Tesla Inc TSLA.

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

In the early trade, money flows are negative in NVDA.

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

The momo crowd is buying stocks in the early trade. Smart money is inactive in the early trade.

Gold

The momo crowd is buying gold in the early trade. Smart money is inactive in the early trade.

For longer-term, please see gold and silver ratings.

The most popular ETF for gold is SPDR Gold Trust GLD. The most popular ETF for silver is iShares Silver Trust SLV. 

Oil

API crude inventories came at a build of 0.674M barrels vs. a consensus of a build of 2.133M barrels.  

The momo crowd is buying oil in the early trade. Smart money is inactive in the early trade.

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF USO.

Bitcoin

Bitcoin BTC/USD is range bound.  Sentiment in bitcoin continues to be bullish as the belief is steadfast that it is only a matter of time before bitcoin whales run up bitcoin above $50,000.  Bitcoin bulls are hoping that bitcoin whales will take advantage of the low liquidity over the coming weekend to run up bitcoin.  

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.

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 seven 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 2008 financial crash, the start of a mega bull market in 2009, the COVID crash, the post-COVID bull market, and the 2022 bear market.  Please click here to sign up for a free forever Generate Wealth Newsletter.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.