Palantir Earnings Will Impact Market Sentiment; Rate Cut Hopes Fuel Buying

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

Most Expensive AI Stock

Please click here for an enlarged chart of Palantir Technologies Inc PLTR.

Note the following:

• This article is about the big picture, not an individual stock. The chart of PLTR stock is being used to illustrate the point.
• The chart shows the rise in PLTR stock. PLTR stock is a component of the S&P 500.   As full disclosure, PLTR is also in our portfolio. 
• The chart shows PLTR stock was in our buy zone earlier this year before the big rise. 
• RSI on the chart shows divergence.  This indicates PLTR stock may pull back.
• Palantir reports earnings today after the regular session close.  PLTR earnings will impact the sentiment in the entire stock market for the following reasons:
  • PLTR is the momo crowd's favorite AI software stock.
  • PLTR stock is the most expensive stock in the S&P 500 by P/S.
  • Palantir consolidated its many contracts with the military into a single $10B contract with a term of up to 10 years.  PLTR has become a very important defense contractor.
  • Whisper numbers are running higher than consensus numbers.  Whisper numbers are the numbers analysts privately share with their best clients.  Whisper numbers are often different from consensus numbers published by the same analysts for public consumption.  Analysts typically provide whisper numbers only to their best clients, and not the public.
• There is buying in the stock market on hopes of a rate cut in September.
• In our analysis, the probability of a rate cut in September is 70%.   
• Yields are falling in anticipation of a rate cut.  

Magnificent Seven Money Flows

In the early trade, money flows are positive 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 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).

Oil

Oil is being sold as OPEC+ plans to increase production.  

Bitcoin

Bitcoin is seeing selling.

What To Do Now

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.

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Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.