BUYING ON POWELL TESTIMONY, INTEL BECOMES A FAVORITE AI PLAY BUT CHART HAS A LESSON FOR AI BULLS

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By Nigam Arora & Dr. Natasha Arora

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

Lesson For AI Bulls

Please click here for a chart of Intel stock (INTC).

Note the following:

  • The Morning Capsule is about the big picture, not an individual stock.  The chart of INTC stock is being used to illustrate the point.
  • The chart shows that INTC has become a favorite AI play.
  • The chart shows a big recent move in INTC as Wall Street wakes up to the demand for AI PCs that is ahead.
  • The chart shows the Arora buy zone.  The Arora call was ahead of Wall Street, anticipating demand for AI PCs later this year.
  • The chart has a valuable lesson for AI bulls.
    • The chart shows that INTC stock was running up last year on AI excitement.
    • The chart shows INTC stock traced a double top.  A double top is a negative technical pattern.
    • The chart shows that the double top was followed by earnings less than whisper numbers, leading to a big drop in the stock.
    • What you see on the INTC chart can potentially also happen to today’s AI darlings such as Nvidia (NVDA), Advanced Micro Devices (AMD), Micron (MU), Super Micro Computer (SMCI), Taiwan Semiconductor (TSM), Arm (ARM), and Applied Materials (AMAT).  Therefore, it is important for investors to have access to a reliable independent research resource that provides a balanced view and is not a permabull.
  • The chart shows INTC stock is entering a new resistance zone.  The attractiveness of Intel is that if China attacks Taiwan, INTC stock can spike north of $100.
  • Here is a good example of intermarket analysis that can give you a big edge.  Chinese stocks, especially AI stocks, are very inexpensive compared to U.S. stocks.  However, there is a risk in buying Chinese stocks. The intermarket analysis shows that the combination of using INTC stock as a hedge and buying certain Chinese ETFs when they dip in the buy zones has merit.  For buy zones on Chinese ETFs and specialty ETFs with large holding in China, see ZYX Emerging.  ZYX Emerging has continuously covered China for 17 years.
  • Powell is testifying in front of Congress.
    • There is buying ahead of Powell’s testimony.
    • Powell is expected to be dovish.
    • Powell is expected to say that inflation is coming down and the Fed wants to see more evidence before cutting interest rates.
    • Powell is also expected to comment on the weakening labor market.
    • The market is likely to read Powell’s comments to mean that a rate cut is coming in September.
  • In The Arora Report analysis, the probability of a rate cut in September is 70%.  
  • It is important for investors to follow Arora’s Second and Third Law of Investing and Trading.  The second law states, “Nobody knows with certainty what is going to happen next in the markets.”  The third law states, “Making investing and trading decisions based on probabilities is the only realistic and profitable approach.”
  • As a note of interest, Helen of Troy (HEL), the maker of brands such as Vicks and Revlon, is falling about 30% on earnings coming below whisper numbers.  This shows that the market is punishing earnings misses.
  • As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.   Please scroll down to see the protection band. The protection band is one of the large number of unique edges that are available to members of The Arora Report.
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Magnificent Seven Money Flows

In the early trade, money flows are positive in NVDA, Meta (META), Amazon (AMZN), Microsoft (MSFT), and Alphabet (GOOG).

In the early trade, money flows are neutral in Tesla (TSLA) and Apple (AAPL).

In the early trade, money flows are positive in S&P 500 ETF (SPY) and Nasdaq 100 ETF (QQQ).

Momo Crowd And Smart Money In Stocks

The momo crowd is *** (To see the locked content, please take a 30 day free trial)  stocks in the early trade.  Smart money is *** in the early trade.

Note for new members: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling.  Over a long period of time, investors come out ahead by adopting smart money’s ways.  The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money.

Gold

The momo crowd is *** gold in the early trade.  Smart money is *** in the early trade.

In The Arora report analysis, silver is showing early signs of a potential breakout.  Silver ETF (SLV) is in ZYX Buy.  

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is *** oil in the early trade.  Smart money is *** in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin (BTC.USD) is range bound.

Markets

Our very, very short-term early stock market indicator is *** but can quickly change based on Powell’s testimony.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

See also  INVESTORS PAY ATTENTION TO NVIDIA, APPLE, AND MICROSOFT DIVERGENCE; ELECTION SHOCK IN FRANCE

Interest rates are ticking up and bonds are ticking down.

The dollar is stronger.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $2365, silver futures are at $31.18, and oil futures are at $82.09.

S&P 500 futures are trading at 5636 as of this writing.  S&P 500 futures resistance levels are 5748 and 5926: support levels are 5622, 5500, and 5400.

DJIA futures are up 26  points.

Protection Band And What To Do Now

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

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider holding *** in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of ***, and short term hedges of ***. 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.

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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 seven 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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Picture of Nigam Arora

Nigam Arora

Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.

Picture of Dr. Natasha Arora

Dr. Natasha Arora

Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.

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