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To gain an edge, this is what you need to know today.
BOJ Saves The U.S. Stock Market
Please click here for an enlarged chart of Super Micro Computer Inc (NASDAQ:SMCI).
Note the following:
SMCI has become a favorite of the momo crowd. The momo crowd incorrectly thinks SMCI has the same potential as NVIDIA Corp (NASDAQ:NVDA). Investors need to keep in mind the following:
- SMCI moves a lot more than NVDA. SMCI is so volatile because of the small float.
- SMCI is an assembler of servers for artificial intelligence. It uses components from NVDA, Micron Technology Inc (NASDAQ:MU), and Marvell Technology Inc (NASDAQ:MRVL).
- NVDA has a large moat to protect it that includes IP for its GPUs. SMCI has no moat and the barrier to entry for competitors is low.
- SMCI sales are to hyperscalers like Microsoft Corp (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc Class C (NASDAQ:GOOG). The reason SMCI sales are booming is that they have availability of NVDA chips. As chips become more available to competitors, SMCI will not be able to sustain its sales growth rate.
- The momo crowd is buying SMCI due to lack of knowledge. However, there are many investors who understand and have the knowledge of SMCI’s business. Many such investors are short selling SMCI. For the time being, short sellers are being overwhelmed by the YOLO crowd.
- Taking all of the above into consideration with the quantitative analysis screen of the ZYX Change Method, in an optimistic case, the fair value of SMCI stock is $442 – $486.
Magnificent Seven Money Flows
In the early trade, money flows are positive in Amazon (AMZN), Nvidia (NVDA), Microsoft (MSFT), Alphabet (GOOG), Meta Platforms Inc (NASDAQ:META), Tesla Inc (NASDAQ:TSLA), and Apple Inc (NASDAQ:AAPL).
In the early trade, money flows are positive in SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust Series 1 (NASDAQ:QQQ).
Momo Crowd And Smart Money In Stocks
Investors can gain an edge by knowing money flows in SPY and QQQ. Investors can get a bigger edge by knowing when smart money is buying stocks, gold, and oil. The most popular ETF for gold is SPDR Gold Trust (NYSE:GLD). The most popular ETF for silver is iShares Silver Trust (NYSE:SLV). The most popular ETF for oil is United States Oil ETF (ASCA:USO).
Bitcoin
Bitcoin (CRYPTO: BTC) is seeing buying on the drop in the yen.
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 a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. 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.
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.
The Arora Report is known for its accurate calls. The Arora Report correctly called the big artificial intelligence rally before anyone else, the new bull market of 2023, the bear market of 2022, new stock market highs right after the virus low in 2020, the virus drop in 2020, the DJIA rally to 30,000 when it was trading at 16,000, the start of a mega bull market in 2009, and the financial crash of 2008. Please click here to sign up for a free forever Generate Wealth Newsletter.
Posted In: $BTC AAPL AMZN GLD GOOG META MRVL MSFT MU NVDA QQQ SLV SMCI SPY TSLA