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

Human-Like Reasoning AI Ahead

Please click here for an enlarged chart of NVIDIA Corp (NASDAQ:NVDA).

Note the following:

• This article is about the big picture, not an individual stock.  The chart of NVDA is being used to illustrate the point.
• The chart shows that last week NVDA stock touched the top band of the support zone.
• RSI on the chart shows that NVDA was oversold when it touched the top band of the support zone.  Oversold stocks tend to bounce.  The chart shows this is exactly what was happening until yesterday.
• In yesterday's Morning Capsule, we wrote:

In the early trade, the momo crowd is ignoring the data and aggressively buying the slight dip in AI stocks.  The buying in AI stocks is due to front running a speech by Nvidia’s Jensen Huang.  The buying is especially aggressive in Nvidia (NVDA).

• When Jensen Huang did not say anything new to run up NVDA stock, NVDA stock pulled back.  After NVDA stock pulled back, a new momo guru narrative started taking hold.  We wrote yesterday in a post in ZYX Buy and ZYX Allocation:

This afternoon, the momo crowd is again extremely aggressively buying semiconductor stocks as momo gurus’ new narrative takes hold.  Momo gurus have all but anointed Harris as the next president after last night’s debate performance.  Momo gurus’ new narrative is that Harris will not be harsh on China like Trump, and there will be no tariffs.  This will provide an opportunity for semiconductor companies to sell more semiconductors to China.

• We also wrote:

In The Arora Report analysis, there are two major problems with the new momo guru narrative:

• It is premature to anoint Harris as the next president.
• Even if Harris is elected president, she is not going to give away AI technology to China.

Europe

The European Central Bank (ECB) has cut interest rates by 25 basis points. This is inline with the consensus.

The interest rate differential between the U.S. and Europe has now widened, putting pressure on the Fed to cut rates.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Alphabet Inc Class C (NASDAQ:GOOG), Meta Platforms Inc (NASDAQ:META), and Nvidia (NVDA).

In the early trade, money flows are neutral in Apple Inc (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), and Microsoft Corp (NASDAQ:MSFT).

In the early trade, money flows are negative in Tesla Inc (NASDAQ:TSLA).

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

Bitcoin

Bitcoin (CRYPTO: BTC) was seeing buying with tech stocks prior to the release of PPI data.  However, after the release of PPI data, selling has come into bitcoin.

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.