AI Progress From Microsoft – Phi-4 Outperforms Human-like reasoner AI Model GPT-4o, Bitcoin Rumor

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

Small Language Model

An enlarged chart of Microsoft Corp. MSFT

Note the following:

• This article is about the big picture, not an individual stock.  The chart of MSFT stock is being used to illustrate the point.
• The chart shows MSFT stock has climbed in December so far.
• The chart shows support and resistance zones for MSFT.
• RSI on the chart shows MSFT stock is overbought.  Overbought stocks are susceptible to a pullback.
• The Arora Report previously shared with readers a major milestone in AI progress – human-like reasoning capabilities using chain link thinking in Model 4o from OpenAI.
• ChatGPT-4o is a large language model.
• In further AI progress, Microsoft has introduced Phi-4.  Phi-4 is a small language model that outperforms GPT-4o in certain mathematical reasoning.  Phi-4 is only a fraction of the size of GPT-4o.  It appears that Phi-4 can do better in solving certain math problems compared to its teacher model GPT-4o.  Also of note is that Microsoft trained Phi-4 mostly on synthetic data.
• The foregoing is important for investors as investors need to get ahead of the curve.  In The Arora Report analysis, Phi-4 challenges the present belief that bigger is better.
• In The Arora Report analysis, small language models such as Phi-4 have a very bright future.  There is a fortune to be made in AI between now and 2030.  However, it will not be in a straight line.  At times, it will be treacherous.
• There is excitement in the stock market this morning as it was announced Friday after the close that AI software company Palantir Technologies Inc PLTR and big bitcoin holder MicroStrategy Inc MSTR are being added to the Nasdaq 100.
• The Arora Report has previously written that one of the things Trump can do to reduce inflation from his policies is to attract foreign investment to the U.S.  In the first sign of success for Trump, Japan's SoftBank Group Corp – ADR SFTBY CEO Masayoshi Son will announce at Mar-a-Largo a $100B investment in the U.S. over the next four years.
• There is also buying in the early trade as the market believes it is a certainty that the Fed will cut interest rates this week in spite of the data not supporting such a rate cut.
• Markets in the U.S. are not being impacted by weakness in Europe and Asia as there was powerful pumping of stocks in the media over the weekend.  Retail investors tend to be influenced by the weekend pump and buy on Monday morning.

France

Moody's has cut France's credit rating.  French stocks and bonds are falling.

China

Markets all across the globe are being negatively impacted by weak retail sales data in China.

Retail sales in China came at 3.0% year-over-year vs 4.8% consensus.

Concern is building that the Chinese consumer is not spending in spite of stimulus measures by the government.

In The Arora Report analysis, investors should note the sharp contrast between U.S. consumers and Chinese consumers at this time.  U.S. consumers are on a buying binge.  Chinese consumers are holding back and are focused on savings.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc., Alphabet Inc Class C , Meta Platforms Inc , NVIDIA Corp , and Tesla Inc.

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

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

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

Over the weekend, Bitcoin BTC/USD ran over $106,000 on a rumor that Trump will announce the bitcoin reserve on day 1.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  The proprietary protection band from The Arora Report is very popular.  The protection band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding 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.