NVIDIA DRIVING STOCK MARKET RALLY, AVERAGE STOCK IS A DIFFERENT STORY, AI COPPER TRADE HURTING

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By Nigam Arora & Dr. Natasha Arora

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

Pay Attention To The Average Stock

Please click here for a chart of S&P 500 ETF (SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

  • The chart shows SPY compared to SPY Equal Weight ETF (RSP) and Nvidia stock (NVDA).  SPY is cap weighted.
  • The chart shows that SPY has gained 2.6% over the last 30 days while RSP has lost 2.45%.
  • The chart shows that NVDA has gained 39.76% during the same period.
  • Make no mistake, it is an NVDA rally, taking along other AI stocks.  However, the average stock is doing poorly.
  • History teaches that it is not prudent to become overly aggressive when the average stock is doing poorly.  
  • Members of The Arora Report are long NVDA stock from $12.55.  The Arora target is $163 –  $172.
  • The Arora Report was bullish on AI and NVDA before almost anyone else.  Having said that, an important data point is that the most often asked question we get now is from investors wanting to jump on the bandwagon and buy NVDA stock now.  Based on the history of the questions we have received over a long time, this indicates extreme bullish sentiment on NVDA stock.  Consider the following:
    • Extreme bullish sentiment is a contrary signal.  It is worth a reminder that sentiment is not a precise timing indicator.
    • Analysts who have been bullish on NVDA stock from much lower prices are not recommending jumping on the NVDA bandwagon now.
    • Analysts who totally missed NVDA’s rise are now jumping in, recommending their followers to go all in on NVDA.
    • The recent rise in NVDA is mostly driven by retail investors.
    • Historically, retail investors tend to be wrong at turning points.
    • Technically NVDA is very overbought.
  • Investors should remember two historical factors:
    •  Analysts are expecting NVDA to grow 70% per year over the next five years.  This is something that no large cap U.S. stock has ever accomplished in the entire market history.
    • Out of the ten most popular stocks in 1988 that retail investors were rushing headlong to buy, eight no longer exist. The only two that still exist are IBM and GE.
  • Prudent investors who do not already own NVDA stock may consider buying on a dip in the buy zone or when the Buy Now rating turns to yes.
  • The Fed’s Kashkari said that the Fed can take its time before cutting rates.
  • More Fed speak is ahead that may be market moving.
  • The U.S. economy is 70% consumer based.  Therefore, prudent investors pay attention to retail sales.  All important retail sales data will be released tomorrow at 8:30am ET.
  • 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.
See also  PRUDENT INVESTORS PAY ATTENTION TO CANARY IN COAL MINE – OBLIVIOUS MOMO CROWD SUPPORTING THE MARKET

Red Hot Copper Trade

The AI driven red hot copper trade is getting hurt on data from China.  Here are the two pieces of data from China that are hurting copper:

  • House prices declined by 3.9% year-over-year.
  • Industrial production grew by 5.6% year-over-year vs. 6.2% consensus.

Europe

There were early gains in Europe as investors bought on Marine Le Pen’s statement that she would cooperate with President Macron and respect political institutions.  However, the rally was met with selling, causing gains to mostly disappear

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple (AAPL) and Nvidia (NVDA).

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

In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), and Meta (META).

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

See also  AI STOCKS SHOW ASYMMETRY ON EXPECTATIONS PROVING TOO HIGH, WALL STREET PREPS FOR PRESIDENTIAL DEBATE

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 seeing slight selling in the early trade.

Markets

Our very, very short-term early stock market indicator is ***.  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.

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 $2334, silver futures are at $29.43, and oil futures are at $78.33.

S&P 500 futures are trading at 5430 as of this writing.  S&P 500 futures resistance levels are 5500 and 5622: support levels are  5400, 5256, and 5210.

DJIA futures are down 106 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.

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

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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