Negativity From China's Restrictions On Nvidia And AMD - Positivity From China's Willingness To Talk

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

Nvidia's $5.5B Hit

Please click here for an enlarged chart of Invesco QQQ Trust Series 1 (QQQ).

Note the following:

• The chart shows that after hours yesterday, QQQ broke below the micro support zone.  The micro support zone shown on the chart has now become the new lower micro resistance zone.
• The chart shows that early this morning QQQ rallied on China news.
• The chart shows that QQQ barely rallied into the prior micro support zone before drifting below the prior micro support zone.
• Markets always have crosscurrents.  Here are the important crosscurrents of the day:
  • China is ready to talk to resolve trade issues. The market is expecting more good news from China trade talks.
  • Talks with Japan on trade begin today.  There is likely to be good news from talks with Japan.
  • On the negative side, the U.S. Commerce Department now has a new licensing requirement for NVIDIA Corp.’s (NVDA) H20 and Advanced Micro Devices Inc.’s AMD MI308.
    • The new requirement is forcing Nvidia to take a $5.5B charge.
  • ASML Holding NV (ASML) is a Dutch company and is the largest provider of extreme ultra lithography equipment for semiconductor manufacturing. ASML released earnings this morning with a beat on revenue and underwhelming guidance.  ASML stated, "However, the recent tariff announcements have increased uncertainty in the macro environment and the situation will remain dynamic for a while."
  • We shared with you in Monday's Morning Capsule that China had suspended the export of rare earth minerals. In response, President Trump has now ordered an investigation into new potential tariffs on critical mineral imports.   Investors should note China is the top producer of 30 out of 50 critical minerals.  MP Materials Corp (MP) is a major American rare earth miner.  As full disclosure, MP is in the portfolio that surrounds The Arora Report’s ZYX Buy Core Model Portfolio.
• How should investors handle these crosscurrents?  The answer lies in strategies such as dynamic hedging, raising cash, non-correlated assets such as gold, implementing proper position sizes, and differentiating between strategic and tactical positions. No worries if you did not implement some of these important strategies.  Markets go up, and markets go down.  It is important to understand these strategies, so that as new opportunities arise, you can implement them.  Consistently applying these strategies over years is the key to maximizing the wealth generated over a lifetime.
• China's Q1 GDP came better than expected.  In our analysis, investors should ignore the data because it is from before the tariff increases. Here are the details:
  • China's GDP came at 1.2% quarter-over-quarter vs. 1.4% consensus and 5.4% year-over-year vs. 5.2% consensus.
• Prudent investors closely watch retail sales data as the U.S. economy is 70% consumer based.  Retail sales came stronger than expected.  The U.S. consumer is still going strong in spite of various uncertainties.  Here is the latest retail sales data.
  • Headline retail sales came at 1.4% vs. 1.3% consensus.
  • Retail sales ex-auto came at 0.5% vs. 0.2% consensus.

Magnificent Seven Money Flows

In the early trade, money flows are negative in Nvidia (NVDA), Apple Inc (AAPL), Amazon.com, Inc. (AMZN), Alphabet Inc Class C (GOOG), Meta Platforms Inc (META), Microsoft Corp (MSFT), and Tesla Inc (TSLA).

In the early trade, money flows are negative in SPDR S&P 500 ETF Trust (SPY) and Nasdaq 100 ETF (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).

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Bitcoin

Bitcoin is seeing selling along with tech stocks.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  Our proprietary protection band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.

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.