Nvidia's New High Shows More Room For AI Trade, Buying On Trump's Move To Make Powell Miserable

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

Room In AI Trade

Please click here for an enlarged chart of NVIDIA Corp NVDA.

Note the following:

• This article is about the big picture, not an individual stock.  The chart of NVDA stock is being used to illustrate the point.
• The chart shows NVDA stock broke out above zone 1.  Zone 1 was previously resistance and is now support.
• The chart shows on April 9 we gave a signal to buy NVDA stock naming NVDA one of the top stocks to buy on the dip.  On April 9, NVDA stock traded in the range of $97.53 – $115.10.
• Yesterday, NVDA stock made a new high.  NVDA is trading at $156.80 as of this writing in the premarket.  At its low after Liberation Day, NVDA stock fell to $86.62.  The consensus in the market at that time was the AI trade was over.  However, we remained steady fast in our conviction that the AI trade had a long way to go.  As full disclosure, we gave signals initiating several trade-around positions, including one on NVDA as shown on the chart. Trade around positioning is a technique billionaires and hedge funds use to dramatically increase returns while reducing risks. 
• NVDA stock breaking to a new high shows that our call that money is to be made in AI all the way to 2030 is proving spot on.
• The sentiment on Wall Street is already extremely bullish.  You would think it is difficult to add more bullishness to extreme bullishness, but that is exactly what President Trump has accomplished.  President Trump's actions aim to take away the Federal Reserve's independence sooner than expected.  Here are the key points:
  • Powell's term expires in 11 months.
  • Traditionally, the president announces the pick for the new Fed chair three to four months ahead of time.
  • President Trump is planning to announce his pick as early as this summer or early fall.
  • The belief is that by announcing his pick so early, President Trump will make Powell miserable enough that Powell will do whatever President Trump wants.
  • Momo gurus are cheering that President Trump will take away the Fed's independence and the new Fed chair will be President Trump's puppet.
  • A puppet Fed chair will dramatically cut interest rates, running up the stock market much higher in the short to medium term.  
• As the momo crowd celebrates, prudent investors should make money from the short to medium term moves in the stock market but be very concerned for the long term if the Fed loses its independence.  
• Foreign investors are already very concerned.
• The dollar hit three year lows on concerns about a puppet Fed chair.  If most of your wealth is in dollars, you need to take steps to protect your wealth.  The steps include investing in foreign markets, foreign currencies, gold, and other commodities.
• Initial jobless claims came at 236K vs. 247K consensus. This data indicates that for the time being the jobs picture is strong.  It is worth a reminder that the jobs picture drops off very quickly when the economy slows down.  Initial jobless claims is a leading indicator and carries heavy weight in the adaptive ZYX Asset Allocation Model with inputs in ten categories.
• Durable orders data is strong.
  • Durable orders came in at 16.4% vs 6.6% consensus.
  • Durable orders ex-transport came at 0.5% vs 0.1% consensus.
  • In our analysis, durable orders is a volatile series, and investors should not assign significant meaning to the strength here.
• Q1 GDP-third estimate came at -0.5% vs. -0.2% consensus.  In our analysis, this should concern prudent investors as it indicates a slowing economy.
• Q1 GDP deflator-third estimate came at 3.8% vs. 3.7% consensus.
• PCE, the Fed's favorite inflation gauge, will be released tomorrow at 8:30am ET.   In our analysis, PCE will likely come inline with expectations.  The consensus for headline PCE is 0.1% and 0.1% for core PCE.
• Personal income and personal spending data will also be released tomorrow at 8:30am ET.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon.com, Inc. (AMZN), Alphabet Inc Class C (GOOG), Meta Platforms Inc (META), Microsoft Corp (MSFT), and NVIDIA Corp (NVDA).

In the early trade, money flows are neutral in Apple Inc (AAPL).

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

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 range bound.

Arora 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.