US Vs. China: Huawei Roadmap to Challenge Nvidia; Nvidia Invests In Intel; Market Discounts Five Cuts

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

U.S. Vs. China

Please click here for an enlarged chart of Intel Corp INTC.

Note the following:

• This article is about the big picture, not an individual stock.  The chart of INTC stock is being used to illustrate the point.
• The chart shows INTC stock has jumped about 30% on the news that NVIDIA Corp NVDA will invest $5B in Intel and co-develop chips.
• The chart shows that INTC stock has broken out.
• The chart shows INTC stock is nearing zone 2 (resistance).
• RSI on the chart shows INTC stock is overbought.  Overbought stocks are susceptible to a pullback.
• Nvidia and Intel have partnered to co-develop many generations of data center and PC products. Intel will build custom CPUs and Nvidia will integrate them into its AI platforms.  Additionally for personal computers, Intel will build circuits integrating Nvidia hardware.
• Earlier this year, we shared with you Chinese tech company Huawei was taking market share from Apple Inc (AAPL) in the smart phone market in China.   Huawei is now challenging Nvidia.  Huawei announced a new supernode computing cluster for AI that completely bypasses Nvidia's chips.
• In our analysis, Huawei's roadmap and Nvidia's investment in Intel sets up the contour of how the U.S. and China are on a path to develop separate ecosystems for AI.  
• In our analysis, these developments are negative for Advanced Micro Devices, Inc. (AMD).   AMD will face stiffer competition from both Intel and Nvidia.  The increased competition will be on multiple fronts including PCs.  
• In our analysis, these developments are also negative for Semiconductor Mfg. Co. Ltd. (TSM).  Taiwan Semiconductor has been manufacturing Nvidia chips.  Now Taiwan Semiconductor will face real competition from Intel.  
• In our analysis, after the rate cut yesterday, the stock market is now discounting five more interest rate cuts – two this year and three next year.  The political pressure from President Trump may indeed result in five or more cuts.  Prudent investors need to be concerned that inflation is still above the 2% target, running around 3%.  Rate cuts have the potential to stoke inflation.  
• Initial jobless claims came at 231K vs. 245K consensus.

U.K.

The Bank of England (BOE) left interest rates at 4% and is taking a cautious stance of future rate cuts.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc. (AMZN), Alphabet (GOOG), Nvidia (NVDA), and Tesla Inc (TSLA).

In the early trade, money flows are neutral in Apple (AAPL), Meta Platforms Inc (META), and Microsoft Corp (MSFT).

In the early trade, money flows are positive in SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust Series 1 (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 (GLD).  The most popular ETF for silver is iShares Silver Trust (SLV).  The most popular ETF for oil is United States Oil ETF (USO).

Bitcoin

Bitcoin is seeing buying.

What To Do Now

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.

Benzinga Disclaimer: This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.