High Bandwidth Memory Beneficiary Of Nvidia Chips But Micron Reverses, FedEx Hurts Sentiment

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

Pay Attention To Sentiment

Please click here for a chart of Micron Technology Inc MU.

Note the following:

• This article is about the big picture, not an individual stock.  The chart of MU stock is being used to illustrate the point.
• The chart of MU stock is important as it demonstrates the behavior of non-momo crowd investors towards tech stocks has changed, while the momo crowd is sticking to its old behavior.
• The chart shows momo crowd buying ahead of Micron earnings.  Since the momo crowd buys on hopium and does not take risk into account, the momo crowd buys ahead of earnings.  In contrast, smart money tends to control risk ahead of earnings, since earnings is a risk event.
• The chart shows the momo crowd aggressively running up MU stock after earnings to over $109.  Micron earnings were better than the consensus and whisper numbers.
• If the same earnings were reported at any time over the last two years, this morning MU stock would have rocketed further, perhaps to $120.  Instead, the chart shows MU stock has fallen to $99.45 as of this writing in the premarket, not only giving up its gain but also turning negative.  
• In our analysis, non-momo crowd investors took advantage of momo crowd buying and sold into the strength.  The same pattern is being seen in many tech stocks.  
• Micron is one of the three largest manufacturers of semiconductor memory in the world.  Semiconductor memory has become the lifeblood of the modern economy.
• More important is that Micron produces the most advanced high bandwidth memory.  High bandwidth memory is essential for AI.
• The reversal in MU stock is causing sentiment to dampen on all tech stocks.
• We have previously shared with readers about Nvidia GTC.  In terms of Nvidia suppliers, Micron is the biggest beneficiary of what we learned at Nvidia GTC about NVIDIA Corp NVDA new chips.  Information from Nvidia GTC is negative for Advanced Micro Devices Inc AMD, Intel Corp INTC, and Broadcom Inc AVGO.
• Yesterday was Nvidia's first ever Quantum Day.  We wrote in yesterday's Morning Capsule:

In our analysis, there is a high probability of a sell-the-news reaction in quantum stocks.  Quantum computing has the potential to be bigger than the internet.

• The Arora Report's call about quantum computing has proven spot on.  Quantum computing stocks such as IONQ Inc (IONQ), Rigetti Computing Inc (RGTI), D-Wave Quantum Inc (QBTS), Quantum Computing Inc (QUBT), and Arqit Quantum Inc (ARQQ) have experienced major drops.
• Adding to the pall for non-tech stocks this morning are earnings from FedEx Corp (FDX).  FedEx is a global shipping and logistics giant.  FedEX earnings, in big part, depend on the strength of the global economy.  FedEx reported earnings below consensus and whisper numbers.  FDX stock is down over 9% as of this writing in the premarket.
• After FedEx hurting consumer discretionary stocks this morning are earnings from Nike Inc (NKE). The Nike turnaround is going to take longer under its new highly respected CEO. As full disclosure, NKE is in the Portfolio that surrounds The Arora Report’s ZYX Buy Core Model Portfolio.
• Helping cushion in the drop in the stock market this morning is the expiration of futures this morning.  Options will expire at the end of the day and may exert upward pressure.  $4.5T of derivatives are expiring today.
• In the Afternoon Capsule after the Fed announcement, we shared with you that the stock market was running up on aggressive momo crowd buying.  At a time when the stock market was running up on aggressive buying, we wrote:

Powell has done a masterful job of comforting the stock market.  However, prudent investors should note that the risks are not balanced anymore and the dot plot is mildly more hawkish.  Right now, the momo crowd is buying stocks as Powell provides comfort.  Smart money is not likely to find the same comfort that the momo crowd is finding.

• The foregoing call has proven spot on.  The stock market has now given up all of the Fed rally and more.
• The stock market needs to make a stand right around here and go up.  Otherwise, the momo crowd will incur major losses.  In The Arora Report analysis, if the momo crowd incurs major losses, they will have less buying power to run up the stock market.  Over the last two years, the momo crowd has been the primary force running up the stock market.  It is important to pay attention to the momo crowd's buying power.  

Germany

In a watershed event, for the first time since World War II, Germany approved 500B euros in infrastructure and defense spending in addition to a borrowing increase.

Magnificent Seven Money Flows

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), Microsoft Corp (MSFT), NVIDIA Corp (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 is range bound.

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 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.