Nvidia Traces A Negative Pattern $5.5T Quad Witching, Slow Growth In Europe

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

Negative Pattern

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

Note the following:

• The chart shows that NVDA stock opened higher yesterday. The higher opening was the result of more good news, pump during the holiday the day before, and continuing momentum from retail investors rushing in head long to buy.
• The chart shows that the stock closed lower than the prior trading day.
• The foregoing is a negative pattern that shows up as a bearish engulfing candle on a day chart.
• The pattern needs confirmation. Confirmation will be achieved if there is follow through to the downside today.
• The chart shows in the early trade, there is follow through to the downside.
• The momo crowd has been aggressively buying the dip.
• The chart shows that in spite of aggressive momo crowd buying, the VUD indicator was orange yesterday. Orange indicating net supply of stock.  VUD indicator is the best way to ascertain net supply/demand in real time.  As full disclosure, VUD indicator is one of many proprietary indicators of The Arora Report.
• If the incessant momo crowd buying causes the stock to close higher than the lower low shown on the chart, the pattern will be negated.
• A similar pattern occurred in NVDA stock on March 8, 2024. The pattern was followed by an approximate 20% drop in NVDA stock.
• Setting technicals aside, when a stock goes down on good news, it is a sign that a stock is getting over owned.  In plain English this means that the stock is running out of buyers willing to buy at higher and higher prices, at least temporarily.
• NVDA is now becoming a cult stock and many investors are emotional about it. As full disclosure, readers and members of The Arora Report are long NVDA stock from $12.55, and NVDA is a large position in The Arora Report Model Portfolio.
• The notional value of quadruple witching today is about $5.5T. In quadruple witching, stock index futures, futures options, stock options, and single stock futures expire.  Quadruple witching often leads to volatility.
• A big part of the moves in the stock market this week have been related to quad witching. Often, but not always, moves related to quad witching reverse the following week.
• S&P Global PMIs will be released at 9:45am ET.  Existing home sales and leading indicators will be released at 10am ET. These data may be market moving, but the market’s primary driver will be option expiration.

Europe

Stocks in Europe are weaker due to disappointing PMI data. Here are the details:

• Flash Manufacturing PMI came at 45.6 vs. 48.0 consensus.
• Flash Services PMI came at 52.6 vs. 53.5 consensus.
• The foregoing data is projecting slower growth.

Magnificent Seven Money Flows

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

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.

Note for new investors: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money.

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

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 seeing selling along with other speculative tech stocks. Bitcoin has now fallen below $65,000.

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.

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 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.