Buying In Nvidia On Chip Restriction Removal And UK Trade Deal, But Devil Is In The Details

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

The Devil Is In The Details

Please click here for a chart of NVIDIA Corp (NVDA).

Note the following:

• This article is about the big picture, not an individual stock.  The chart of NVDA stock is being used to illustrate the point.
• The chart shows that NVDA stock moved above the top band of zone 3.  Zone 3 was previously a resistance zone.  Now, it has become a support zone.
• The trigger behind the move in NVDA stock along with other semiconductor stocks is President Trump's plan to rescind chip export restrictions from the Biden era.  These restrictions were designed to limit export of advanced chips to prevent China from catching up with the U.S.
• In our analysis, buying is coming into semiconductors mostly from the momo crowd as the momo crowd rejoices in the removal of chip restrictions.  As usual, the momo crowd is not doing any analysis.
• In our analysis, President Trump is not going to go any easier on the export of advanced chips to China than Biden.  President Trump is simply overhauling Biden era restrictions to make them simpler and more effective.  There is a high probability that new restrictions may turn out to be harsher than the old restrictions.  
• As the momo crowd aggressively buys semiconductors, the momo crowd is also ignoring disappointing revenue projection from Arm Holdings PLC – ADR (ARM).  This information from Arm is important because Arm designs are in over 90% of smartphones.  ARM stock is falling about 7% as of this writing in the premarket.
• Adding to the aggressive buying in the stock market this morning is a trade deal with the U.K.  President Trump will announce the details of the trade deal at 10am ET.
• In our analysis, prudent investors need to keep in mind the following key points:
  • The trade deal with the U.K. was expected to be the easiest.  
  • A trade deal with the E.U. will not be as easy.  The reason is trade between the U.K. and the U.S. has been mostly balanced, even before any trade deal.  
  • President Trump is promising the U.K. deal will be full and comprehensive, but there is speculation that the U.K. trade deal may turn out to be somewhat limited.  
• The most important trade deal will be with China, and it will be difficult.  As an indication of what is to come, China's President Xi and Russia's President Putin met and are promising to fight what they are calling international bullying by the U.S.
• Pharmaceutical stocks, such as Pfizer Inc (PFE), Merck & Co Inc (MRK), Eli Lilly And Co (LLY), Novo Novo Nordisk A/S (NVO), Bristol-Myers Squibb Co (BMY), and Gilead Sciences Inc (GILD), and Moderna Inc (MRNA), may come under pressure as President Trump plans to significantly cut drug costs.
• Initial jobless claims came at 228K vs. 238K consensus.  This indicates that for the time being, the jobs picture remains strong.

India And Pakistan

As India and Pakistan try to de-escalate, they are also attacking each other with drones.  Stocks in India fell by 0.4% but by 7% in Pakistan.  Prudent investors need to keep an eye on the situation.

Bank Of England

The Bank of England (BOE) cut interest rates to 4.25%.  This was inline with expectations.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Nvidia (NVDA), 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 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

There is jubilation as Bitcoin approaches $100K.  There is aggressive buying in bitcoin related stocks such as MicroStrategy Inc (MSTR), Coinbase Global Inc (COIN), Riot Platforms Inc (RIOT), and MARA Holdings Inc (MARA).

Arora Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  Our proprietary 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.