SEMICONDUCTORS, THE LIFEBLOOD OF THE MODERN ECONOMY, BREAKOUT AGAIN ON AI EXCITEMENT

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By Nigam Arora & Dr. Natasha Arora

 

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

Semiconductors

Please click here for a chart of semiconductor ETF SMH.

Note the following:

  • Semiconductors are the lifeblood of the modern economy, just like oil is the lifeblood of the old economy.
  • The chart shows that semiconductors have broken out again.
  • The price pattern shown on the chart is a positive one.  In traditional technical analysis, this price pattern indicates semiconductors will go higher.
  • RSI on the chart shows that semiconductors are now overbought.  This indicates that there may be a shallow pullback in the overall uptrend for the longer term.
  • As we have been sharing with you, semiconductors are the leading sector and often pull the entire stock market higher or lower.  For this reason, prudent investors pay attention to semiconductors.  Semiconductors are the best performing major sector.  In ZYX Allocation, ETF SMH has 16% allocation.  However, when other ETFs in the portfolio with semiconductor holdings are included, the total allocation to semiconductors in the portfolio is approaching 20%.  This is the maximum allowed. 
  • The importance of semiconductors is underscored by the fact that Nvidia (NVDA) alone is about to exceed the market capitalization of the entire energy sector.
  • The trigger for the breakout in semiconductors was earnings from Taiwan Semiconductor (TSM).  For details of TSM earnings, please see yesterday’s Morning Capsule.  Initially, on release of earnings, TSM stock was up only 1.5% in Taiwan.  However, when the company made very bullish comments on artificial intelligence, TSM stock took off, taking the entire tech sector higher.
  • Adding to the enthusiasm is the launch of Vision Pro mixed reality headset by Apple (AAPL).  After the fears created by three downgrades, all fears about Apple’s stagnant growth disappeared after an upgrade by a major bank. Also pushing Apple higher is the launch of Samsung’s (SSNLF) AI phone.  The speculation is that if Apple were to launch an AI iPhone, it would be a blockbuster.
  • Yesterday, during the mid-day, the stock market pulled back as interest rates rose.  However, buyers rushed in, aggressively buying the shallow dip, especially tech stocks.
  • A significant part of the rally yesterday afternoon was short squeeze.  In the early trade this morning, short squeeze continues, driving stocks higher. Prudent investors need to remember that short squeezes tend to end.
  • Michigan consumer sentiment will be released at 10am ET.  This data may move the stock market.
  • 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.
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China

The Chinese government is back to its old tricks again.  Apparently, at the urging of the government, the largest brokerage in China is no longer allowing short sales.  The purpose is to try to run up the Chinese stock market.  Chinese stocks are suffering, in part, because money is flowing out of China and flowing into India.  ZYX Emerging has covered both China and India continuously for 16 years. Chinese stocks are now some of the cheapest stocks in the world at a time when U.S. stocks are very expensive.

All prudent investors should consider diversifying into emerging markets for the long term.

Magnificent Seven Money Flows

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

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.

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. Bitcoin miners continue to see aggressive short selling.

Markets

Our very, very short-term early stock market indicator is ***.  Keep in mind today is Friday.  Short squeezes tend to occur on Fridays.  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 and bonds are range bound.

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 $2037, silver futures are at $22.85, and oil futures are at $73.92.

S&P 500 futures are trading at 4834  as of this writing.  S&P 500 futures resistance levels are 4852, 4918, and 5020: support levels are 4770, 4713, and 4600.

DJIA futures are up 179 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.

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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This post was just published on ZYX Buy Change Alert.

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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.

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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