Here Is What Is Ahead After AI Frenzy Drives Nasdaq To Best First Half Ever, GDP Surprise

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

Best First Half Ever

Please click here for a chart of Invesco QQQ Trust Series 1 (NASDAQ: QQQ).

Note the following:

• The trendline on the chart shows that the rip-roaring AI rally has slowed and QQQ has stopped its rapid ascent.
• RSI on the chart shows that the overbought condition has been relieved.  Now, the stock market can go either way.
• Nasdaq was started in 1971.  Nasdaq is set to finish the best first half of the year ever.
• The gain in Nasdaq is driven by the AI frenzy.  The tech-heavy Nasdaq is up about 30% compared to only 2% for Global X Dow 30 Covered Call ETF DJIA and only 14% for S&P 500.
• The credit goes to the magnificent seven stocks.  The magnificent seven stocks are Apple Inc AAPL, Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Meta Platforms Inc META, Microsoft Corp MSFT, NVIDIA Corp NVDA, Tesla Inc TSLA.
• Without the magnificent seven, the stock market is only slightly positive.
• No worries if you did not take advantage of the AI frenzy. There is plenty of time ahead to profit from AI over the next seven years. The most important action you can take is to develop your knowledge about investing in AI. Our over 30 years in the markets have demonstrated that investors with more knowledge perform significantly better compared to those who do not put in the effort to develop their knowledge.

• Investors often suffer from recency bias. For this reason, it is important to remember that Nasdaq dropped about 30% during the same period last year.
• Historically, when the first half is this strong, the second half is positive.
• Also historically, when the first half is this strong, the same stocks that worked in the first half tend to work in the second half.
• From a seasonality point of view, July tends to be a strong month. August often brings a rally. The market tends to experience a sell off in September and October. Typically, the market runs up in November and December.
• Investors should always be aware of the history and seasonality but should never invest based on these alone.
• Investors should consider using a comprehensive system such as the adaptive ZYX Asset Allocation Model with a long, proven track record. The model has inputs in ten categories. Please click here to see the ten categories. The model is adaptive in that it changes itself with market conditions.  This is, in part, the secret behind The Arora Report’s success.  Most models on Wall Street are static.  They work for a while, and then they stop working when market conditions change.
• A simpler way to look at the market is in six dimensions. Here is the current status:
  • Macro - negative
  • Fundamentals - negative
  • Technicals - very positive
  • Quantitative - positive
  • Sentiment - positive
  • Liquidity - positive
• In The Arora Report analysis, liquidity is likely to start becoming negative later this year. 
• As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.

GDP Surprise

Q1 GDP-third estimate came at 2.0% vs. 1.3% consensus. This indicates that the economy has been very strong in the first quarter. Keep in mind that this is a lagging indicator. The Arora Report system focuses on leading indicators.

Jobless Claims

Initial jobless claims came at 239K vs. 266K consensus. This is a leading indicator and carries heavy weight in the adaptive ZYX Asset Allocation model. The latest data is very strong, indicating a robust jobs picture. The jobs picture continues to be strong at the low end.

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade. Smart money is inactive in the early trade.

Gold

Unlike the stock market, gold is paying attention to the central bankers. 

Gold is being sold after hawkish comments from central bankers from the U.S., E.U., and U.K. in the ECB forum in Sintra, Portugal.  

The momo crowd is selling gold in the early trade. Smart money is inactive in the early trade.

For longer-term, please see gold and silver ratings.

Oil

The momo crowd is buying oil in the early trade. Smart money is inactive in the early trade.

For longer-term, please see oil ratings.

Bitcoin

Bitcoin BTC/USD is range bound. There is speculation that whales will take advantage of the low liquidity holiday period to run up bitcoin to $32,000.

Markets

Our very, very short-term early stock market indicator is neutral but expect the market to open higher. 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.

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 21% - 39% in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of 3% - 6%, and short term hedges of 5% - 8%. 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.

The Arora Report is known for its accurate calls. The Arora Report correctly called the 2008 financial crash, the start of a mega bull market in 2009, the COVID crash, the post-COVID bull market, and the 2022 bear market.  Please click here to sign up for a free forever Generate Wealth Newsletter.