Great AI Inference Suprise, NVIDIA Declares AI Tipping Point, Japan's Nikkei Crosses 34 Year High

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

Artificial Intelligence Tipping Point

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

Note the following:

• This article is about the big picture, not an individual stock. The chart of NVDA stock is being used to illustrate the point.
• The chart shows when NVDA pulled back on extreme positioning prior to the earnings release. Please read yesterday’s Morning Capsule for details.
• The chart shows NVDA fell below the trendline prior to the release of earnings, triggering many sell signals in traditional technical analysis. This is a perfect illustration as to why it is important to not depend only on traditional technical analysis. Investors should use a sophisticated system such as ZYX Change Method with six comprehensive screens.
• The chart shows the jump up after the earnings release after hours yesterday.
• Nvidia beat earnings. Here are the details:
  • NVDA beat whisper numbers. Revenue came at $22.1B vs. $22B whisper number. Earnings are at $5.16 vs. $5 whisper number. As we have written before, whisper numbers were much higher than consensus.
  • For the current quarter, NVDA is forecasting $24B at the midpoint vs. $22.2B consensus.
  • Data center results were higher due to demand for Nvidia GPUs for generative AI.
  • Hyperscalers accounted for more than half the data center revenue.
• In The Arora Report analysis, there is a great surprise in NVDA earnings that demands investors’ attention.  
  • AI inference shipments were about 40% of AI related shipments.  
  • The consensus for AI inference shipments was 5%.  
  • In plain English, AI inference means AI trained models are actually being used.
  • AI inference correlates with revenue generation. In contrast, AI training correlates to capital spend.
• In The Arora Report analysis, the inference shipment data indicates that AI is being adopted much faster than anybody anticipated before yesterday evening.
• In The Arora Report analysis, if the competition does not heat up, NVDA is on track to achieve $45 - $50 in earnings in 2027. If this comes true, on this basis, NVDA is the cheapest tech stock. Of course the reality is that competition will heat up.  Nonetheless, investors need to be aware that based on the current trajectory, NVDA is not an expensive stock.
• Nvidia earnings are overshadowing everything else.
• 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.

FOMC Minutes

The FOMC minutes were hawkish and do not support momo gurus' narrative of near term rate cuts. Expect momo gurus to come up with a new narrative to run up the stock market. Keep in mind that momo gurus’ real job is to persuade their followers to buy stocks under the disguise of analysis.

Jobless Claims

Initial claims is a leading indicator and carries heavy weight in the adaptive ZYX Asset Allocation Model with inputs in ten categories. In plain English, adaptiveness means that the model changes itself with market conditions.  Most models on Wall Street are static.  They work for a while and then stop working when market conditions change.

Initial claims came at 201K vs. 216K consensus. This indicates that the jobs picture is very strong, especially at the low end.

Japan

Japan’s Nikkei 225 crossed its high from 1989 for the first time in 34 years. There is an important lesson for investors here. Investors have come to believe that bear markets are short, but that is looking backwards through recent U.S. history. Looking forward, given rising national debt and reckless government spending, there is a fair probability of a long bear market in the U.S. Therefore, it is imperative that investors increase their knowledge and access to a resource such as The Arora Report that has a long track record of making money in both bull and bear markets.  

Magnificent Seven Money Flows

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

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

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

Gold

The momo crowd is like a yoyo in 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

The momo crowd is selling 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 and seeing buying based on positive sentiment emanating from NVDA earnings.

There is speculation that bitcoin may see some selling as investors sell bitcoin to buy NVDA.   

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.