Nvidia Earnings Ahead

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

Note the following:

In our analysis, there is now a 95% rate cut in September.  Only if the September inflation data is significantly worse than expectations, the rate cut may not happen.

• Prudent investors should note the following key points:
  • There is no clarity if the September rate cut will be 25 bps or 50 bps.
  • There is no clarity as to how many rate cuts there will be in this cycle.
  • The stock market is discounting five rate cuts going into next year.
  • Inflation continues to run higher than the Fed's 2% target..

Money Flowing Into Chinese Stocks

Money continues to move into Chinese stocks as investors perceive that China has gotten the upper hand in trade negotiations with the U.S.  Hong Kong’s Hang Seng reached its highest level in nearly four years, and China’s Shanghai Composite hit the highest level since 2015.

As full disclosure, mainland China ETF Xtrackers Hvst CSI 300 China A Shs ETF Class A (NYSE:ASHR) and Hong Kong ETF iShares China Large-Cap ETF (NYSE:FXI) are in our portfolio.

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 (CRYPTO: BTC) is seeing selling. It appears bitcoin whales took advantage of the euphoria among retail investors caused by Powell's speech to sell bitcoin into the strength.   

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.