Better Performer Than Nvidia – Copper Stock Freeport On China Optimism, Front Running Blind Money Fizzles

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

Portfolio Construction

Please click here for an enlarged version of the chart of Freeport-McMoRan Inc FCX compared to NVIDIA Corp NVDA.

Note the following:

• This article is about the big picture, not individual stocks.  The charts of Freeport-McMoRan (FCX) stock and Nvidia (NVDA) stock are being used to illustrate the point.
• FCX is a major copper producer.
• The chart shows FCX price action in the top pane and NVDA price action in the bottom pane.  As a full disclosure, both FCX and NVDA are in The Arora Report ZYX Buy Model Portfolio.
• The chart shows that FCX has performed almost 100% better than NVDA for the period shown.  This comes as a surprise to most investors.  This illustrates the need to properly construct a model portfolio diversified by strategies.  The Arora Report uses over 50 different strategies.  Constructing a great portfolio is highly complex. 
• The reason FCX, along with other copper stocks, has done so well is optimism about China’s economy.  China is a major copper user.
• Purchasing Managers’ Index is a leading indicator.  The official data just released from China is positive. A PMI over 50 is considered economic expansion.  China’s Manufacturing PMI moved to expansion for the first time since September of last year.
  • Manufacturing PMI in China came at 50.8 vs. 50.1 consensus.
  • Non-Manufacturing PMI came at 53.0 vs. 51.3 consensus.
• On Friday when the U.S. market was closed, core PCE came at 0.3% vs. 0.3% consensus.  PCE is the Fed’s favorite inflation gauge.
• Fed Chair Powell said that the PCE data was inline with his expectations.  Powell said that lower interest rates would not be right until the Fed is sure about inflation.
• When futures opened on Sunday evening, the momo crowd aggressively bought stock futures and continued to buy them until earlier this morning.  The reason is that Wall Street often front runs the blind money.
• The blind money is the money that pours into the stock market on the first two days of a new month without any analysis and irrespective of market conditions.  Blind money is not price sensitive, i.e., blind money does not care about the price it is paying for the stocks. Most of the blind money is invested in the afternoon.  Traders know this and they buy stocks to sell to blind money at a higher price.
• Prudent investors should note that today, at least temporarily as of this writing, is a departure from the traditional pattern.  As of this writing, the rally in stock futures is fizzling.  The reason is that smart money is selling into the strength.  

Turkey

There is a surprise in the Turkey elections.  Opposition won the municipal elections.  This may create opportunities in Turkey.  As full disclosure, Turkey is part of The Arora Report ZYX Emerging Model Portfolio.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc. AMZN, Microsoft Corp MSFT, and Tesla Inc TSLA.

In the early trade, money flows are neutral in Nvidia (NVDA), Meta Platforms Inc META, and Alphabet Inc Class C GOOG.

In the early trade, money flows are negative in Apple Inc AAPL.

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 aggressively buying stocks in the early trade.  Smart money is selling stocks in the early trade.

Gold

Gold is seeing aggressive buying and hitting a new high. 

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

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

Oil

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.

Bitcoin

Bitcoin BTC/USD is range bound.

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 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.

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