Dow Jones Hits All Time High But Semiconductors And AI Stocks Get Hit Ahead Of Nvidia Earnings

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

Rotation

Please click here for an enlarged chart of SPDR Dow Jones Industrial Average ETF Trust DIA.

Note the following:

• The chart shows the Dow Jones Industrial Average (DJIA) broke out to a new all time high.
• The chart shows that the breakout is not convincing.
• RSI on the chart shows that DJIA is overbought.  An overbought index tends to be vulnerable to a pullback.
• The chart shows that volume is not heavy on the breakout to a new all time high.  This indicates a lack of conviction.
• The reason behind the breakout in DJIA is that a rotation is taking place into cyclical and interest rate sensitive stocks and away from tech stocks.
• Prudent investors should note as DJIA hit a new all time high, AI and semiconductor stocks were being hit.
  • In The Arora Report analysis, this rotation is especially noteworthy because the momo crowd is aggressively buying AI and semiconductor stocks ahead of NVIDIA Corp NVDA earnings.
  • Nvidia reports earnings tomorrow after the close.
• In The Arora Report analysis, aggressive buying by the momo crowd in NVDA and other AI stocks is being countered with selling from hedge funds and institutions.  Prudent investors should note that it is not that hedge funds and institutions are negative on Nvidia.  It is that they represent smart money.  Smart money knows that Nvidia earnings is a risk event.  The risk is both to the upside and the downside.  As we have been sharing with you over the years, smart money tends to reduce risk ahead of events.  In contrast, the momo crowd buys ahead of events because the momo crowd always has stars in their eyes and does not take risk into account.
• The options market is pricing in a 9% move after Nvidia earnings.
• The widespread belief among the momo crowd is that NVDA stock will go above $150 after the earnings.  Such a move will represent about a 20% upside move.
• As full disclosure, Nvidia is long from $12.55 in The Arora Report ZYX Buy Model Portfolio. 
• The foregoing illustrates the need for optimum diversification.  The Arora Report reaches the optimum diversification through diversification of stocks and ETFs, asset classes, geography, strategy, time frame, and protection.
• Consumer confidence will be released at 10am ET and may be market moving.

Germany

The German economy is no longer expanding.  Germany is Europe's largest economy.

Germany's Q2 GDP contracted by 0.1% vs. 0.1% contraction consensus.

China

China is determined to become the world leader in autonomous vehicles.  China has just issued 16,000 license plates for testing autonomous vehicles on designated public roads.

For investors, autonomous driving is the next big opportunity.

Magnificent Seven Money Flows

In the early trade, money flows are neutral in Microsoft Corp MSFT.

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

In the early trade, money flows are negative in SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust Series 1 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 BTC/USD is seeing a pullback along with speculative and junk stocks.

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 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.