Stargate Adds Fuel To AI Frenzy, Chinese Stocks Sink On Trump Tariff Talk

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

Fueling AI Frenzy

An enlarged chart of artificial intelligence ETF Global X Artificial Intelligence & Technology ETF AIQ.

Note the following:

• The chart shows there is a breakout in artificial intelligence ETF in the early trade this morning.  As a caution, all breakouts do not sustain. Prudent investors should carefully watch if the breakout sustains or if it fails.
• RSI on the chart shows AIQ is barely overbought.  RSI shows the ETF has room to run higher.
• Volume on the chart has been staying high, indicating sustained interest.
• The Trump administration has announced an artificial intelligence project called Stargate.  Stargate is a $500B venture to build AI data centers.  The initial equity funders of the joint venture are OpenAI, SoftBank Group Corp – ADR SFTBY, Oracle Corp ORCL, and Abu Dhabi's MGX.  NVIDIA Corp NVDA, Microsoft Corp MSFT, and Arm Holdings PLC – ADR ARM are technology partners.
• The announcement of Stargate is adding fuel to the AI frenzy.
• In The Arora Report analysis, the headline of $500B for Stargate may turn out to be a mirage.  The initial number is $100B and includes previously announced projects.  The new funding may be significantly less than $100B.  For the time being, the analysis does not matter because the momo crowd is buying extremely aggressively on the headline.
• Trump commented that 10% tariffs on China are under consideration.  This is better news for Chinese stocks than the previously mentioned 60% tariffs.  However, Chinese stocks sank on Trump's comment, and the yuan declined.
• The U.S. stock market ran up yesterday, in part, on the assumption that China may escape tariffs.  This morning in the early, the market is ignoring Trump's China comments and continues to run up.
• Extreme positive sentiment is evidence as the market runs up on positive rumors, but when the rumors turn out to be false and the facts are negative, the market ignores it.  In The Arora Report analysis, history is clear.  Long term investments should be initiated when sentiment is extremely negative and profits should be taken when sentiment is extremely positive.  The best way to take advantage of extremely positive sentiment is through tactical positions.  
• The market is also being helped by strong earnings from: Netflix Inc NFLX, United Airlines Holdings Inc UAL, Interactive Brokers Group, Inc. IBKR, Procter & Gamble Co PG.
• Leading Indicators will be released at 10am ET and may be market moving.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc., Meta Platforms Inc, NVDA, and MSFT.

In the early trade, money flows are neutral in Alphabet Inc Class C.

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

In the early trade, money flows are positive in SPDR S&P 500 ETF Trust and Invesco QQQ Trust Series 1.

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.  The most popular ETF for silver is iShares Silver Trust.  The most popular ETF for oil is United States Oil ETF.

Bitcoin

Bitcoin BTC/USD is seeing selling on continued disappointment that Trump has not announced a bitcoin reserve.

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 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.