By Nigam Arora & Dr. Natasha Arora
To gain an edge, this is what you need to know today.
The Leading Sector – AI Frenzy
Please click here for a chart of semiconductor ETF SMH.
Note the following:
- As concerns about weak seasonality in the stock market mount, prudent investors are keeping an eye on semiconductors.
- The chart shows that semiconductors have been the leading sector due to artificial intelligence excitement.
- Semiconductor ETF SMH is up 53.9% so far this year.
- As always, human nature is such that any argument can be justified.
- Stock market bears are justifying their bearish view by pointing to a potential double top as shown on the chart. A double top is a negative pattern.
- Stock market bulls are pointing to the fact that semiconductors broke above the trendline shown on the chart as a positive. Bulls are also pointing to the fact that semiconductors bounced from the upper band of the support zone shown on the chart as a positive.
- RSI shown on the chart indicates that even though semiconductors went up yesterday on AMD (AMD) win, the internal momentum is waning. From yesterday’s Afternoon Capsule, we wrote:
In the face of all of the negative news, investors got excited by AMD’s forward camera win and are aggressively buying semiconductor stocks. The excitement is spilling into other tech stocks.
AMD won the business from Hitachi Astemo for adaptive computing to power the new stereo format, forward looking camera for adaptive cruise control for autonomous emergency braking.
Also helping AMD are comments by CEO Lisa Su regarding opportunity in AI around its MI250s and MI300s.
- The chart shows a leg up in semiconductors on extraordinary Nvidia (NVDA) earnings in May. However, as shown on the chart, semiconductors fell on extraordinary Nvidia earnings in August. The main reason behind the difference in the stock reaction is Wall Street mechanics. Investors can gain an edge by deeply understanding Wall Street mechanics. There are several podcasts on Wall Street mechanics in Arora Ambassador Club.
- There is selling in the premarket due to a big move in the dollar and Boston Federal Reserve President Susan Collins saying that “future tightening could be warranted.”
- The rise in oil prices is leading to fears of inflation reigniting.
- 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.
Rising oil prices and weak economic data are raising concerns about stagflation. Stocks in Europe have fallen for six sessions in a row.
Some property stocks in China are showing the biggest gains since 2009 on hopes of a stimulus by the government.
G-20 Heads of State are meeting in New Delhi on September 9 and 10. Prime Minister Modi of India is proclaiming that India will be a developed country by 2047. India is ascendant and represents one of the best opportunities for long term investors. ZYX Emerging from The Arora Report has covered India for 16 years continuously.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Alphabet (GOOG) and Meta (META).
In the early trade, money flows are negative in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Tesla (TSLA), and Apple (AAPL).
In the early trade, money flows are negative in S&P 500 ETF SPY and mixed 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.
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.
The momo crowd is 🔒 in oil in the early trade. Smart money is 🔒 in the early trade.
For longer-term, please see oil ratings.
Bitcoin (BTC.USD) is range bound.
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 down, and bonds are ticking up.
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 $1949, silver futures are at $23.62, and oil futures are at $86.26.
S&P 500 futures are trading at 4493 as of this writing. S&P 500 futures resistance levels are 4600, 4713, and 4770: support levels are 4460, 4400, and 4318.
DJIA futures are down 76 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.
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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