POWER FOR AI EXUBERANCE REACHES FEVER PITCH – QUANTA BREAKS OUT; COPPER AND OIL RISE ON CHINESE MOVE

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By Nigam Arora & Dr. Natasha Arora

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

AI Exuberance

Please click here for a chart of Quanta Services stocks (PWR).

Note the following:

  • The Morning Capsule is about the big picture, not an individual stock.  The chart of PWR stock is being used to illustrate the point.
  • Artificial intelligence data centers are power hungry.  In the stock market, exuberance for stocks that help power AI data centers has reached a fever pitch.
  • The chart shows PWR stock has broken out.  Quanta Services is a major contractor for utilities.
  • Volume on the chart shows that the volume on the breakout was higher than the recent volume, but not as high as it should have been to generate high conviction in the breakout.
  • RSI on the chart shows that PWR stock is very overbought.
  • The technical breakout is bringing in aggressive buying in PWR stock from investors who trade only on technicals.
  • The momo crowd is aggressively buying PWR stock.
  • PWR stock is in the ZYX Buy Core Model Portfolio.  Long time members of The Arora Report are long from $37.  It is trading at $297.33 as of this writing, representing a gain of 704%.  There will be a new post in ZYX Buy with a new buy zone.
  • From a valuation perspective, PWR stock is now expensive.  It is trading at a trailing PE of 56 and a forward PE of 29.
  • Yesterday, we shared with you about China:

Central Bank Governor Pan Gongsheng will hold a conference tomorrow.

  • China is making a big move.
    • People’s Bank of China (PBC) is lowering its reserve requirement ratio by 50 basis points.
    • The bank has lowered its seven day repurchase rate by 20 basis points.
    • The bank may soon lower its prime rate.
    • The down payment requirement for second homes has been lowered to 15% from 25%.
  • Chinese stocks are jumping.  Stocks in Hong Kong jumped 4.1% and 4.2% in Shanghai.
  • Investors in the U.S. should not underestimate the impact of these moves in China.  The moves are generating position sentiment.
  • Copper, steel, oil, and other commodities are moving up on the China moves.
  • Copper stock FCX is in the ZYX Buy Core Model Portfolio.  There is also a short term trade on oil ETF USO.
  • The Conference Board’s consumer confidence data will be released at 10am ET and may be market moving.
  • 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 Apple (AAPL) and Tesla (TSLA).

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

In the early trade, money flows are negative in Amazon (AMZN).

In the early trade, money flows are mixed 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.

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 ***.  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.

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Interest rates are ticking up, and bonds are ticking down.

The dollar is weaker.

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 $2651, silver futures are at $31.20, and oil futures are at $72.00.

S&P 500 futures are trading at 5778 as of this writing.  S&P 500 futures resistance levels are 5928 and 6017: support levels are 5748, 5622, and 5500.

DJIA futures are up 34 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 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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This post was just published on ZYX Buy Change Alert.

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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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