Oracle Earnings Will Be A Tell On Debt-Fueled AI Trade; Global Yields At 16-Year High Ahead Of Fed Cut

Global Yields Hit 16 Year High

Please click here for an enlarged chart of Oracle Corp (NYSE:ORCL).

Note the following:

• This article is about the big picture, not an individual stock.  The chart of ORCL stock is being used to illustrate the point.
• The chart shows ORCL stock spiked up after the last earnings.  The reason for the spike was Oracle saying it had $500B of backlog for its data centers.
• The chart shows ORCL stock was not able to maintain its spike up and fell when the following were discovered:
  • $300B – $350B of the backlog was from ChatGPT maker OpenAI.
  • The deal involved circular financing with NVIDIA Corp (NASDAQ:NVDA).
• In our analysis, ORCL stock would have likely pulled back to the zone of $262 – $293 and then risen much higher if it was not for the unexpected development of Oracle's decision to go on an extreme borrowing binge.
• The chart shows ORCL stock falling as the debt binge increased.
• ORCL went from a conservative, high-potential stock to a high-risk, high-reward stock in one quarter.
• Oracle reports earnings after hours today.  Depending upon earnings and the commentary, the stock has the potential to move up $80 or fall $50.
• A move in ORCL stock will likely impact the entire AI trade, and especially data center stocks like IREN Ltd (NASDAQ:IREN), Nebius Group NV (NASDAQ:NBIS), CoreWeave Inc (NASDAQ:CRWV), and Cipher Mining Inc (NASDAQ:CIFR).  As full disclosure, we have a profitable position on IREN.  A new signal on IREN is in our report.
• Rising yields in Japan have had a major impact on global bond yields.  Today, global bond yields are hitting a 16-year high.  This is occurring just before the Fed is highly likely to cut interest rates.  
• The consensus is the Fed's rate cut will be accompanied by hawkish commentary.  There are also likely to be dissents in both directions.
• The Fed will announce its interest rate decision today at 2pm ET, followed by a press conference from Fed Chair Powell at 2:30pm ET.
• In spite of all of the negative crosscurrents, investors should not ignore history.  History tells us that the last 20 times the Fed cut interest rates when the stock market was within 2% of its all time high, 100% of the time the stock market went higher over the next 12 months.  The reason is a part of the excess liquidity the Fed provides goes into the stock market.  Keep in mind that this is only one of the many factors investors should consider. 

China Neck To Neck In AI Race

It is not politically correct to say, but as a prudent investor, you need to know the truth, irrespective of political correctness. In our analysis, there is significant evidence that China is neck to neck with the U.S. in the AI race.  The U.S. has a big edge with Nvidia as Nvidia's Blackwell chip is the most capable AI chip around.  The U.S. has banned the export of Blackwell chips to China.  How is China keeping up?  China appears to be keeping up by smuggling Blackwell chips.  There is a new report that the latest DeepSeek AI model was trained on smuggled Blackwell chips.  

Magnificent Seven Money Flows

Most portfolios are now heavily concentrated in the Mag 7 stocks.  For this reason, it is important to pay attention to early money flows in the Mag 7 stocks on a daily basis. 

In the early trade, money flows are positive in Amazon.com, Inc. (NASDAQ:AMZN) and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are neutral in Apple Inc (NASDAQ:AAPL) and Nvidia (NVDA).

In the early trade, money flows are negative in Microsoft Corp (NASDAQ:MSFT), Alphabet Inc Class C (NASDAQ:GOOG), and Meta Platforms Inc (NASDAQ:META).

In the early trade, money flows are mixed 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 (GLD).  The most popular ETF for silver is iShares Silver Trust (SLV).  The most popular ETF for oil is United States Oil ETF (NYSE:USO).

Oil

API crude inventories came at a draw of 4.8M barrels vs. a consensus of a draw of 1.7M barrels.

Bitcoin

A major international bank that has been uber bullish on bitcoin has cut its bitcoin targets: $100K from prior $200K in 2025, $150K from prior $300K in 2026, and $225K from prior $400K in 2027.

Bitcoin (CRYPTO: BTC) is range bound.

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.

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.

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.