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

AI Rally Test

Please click here for an enlarged chart of Micron Technology Inc (NASDAQ:MU).

Note the following:

• This article is about the big picture, not an individual stock.  The chart of MU stock is being used to illustrate the point.
• The trendline on the chart shows MU stock has gone parabolic.  The reason for the parabolic move is that money started flowing into second tier AI plays.  Investors are already overweight in first tier AI plays, such as NVIDIA Corp (NASDAQ:NVDA).
• RSI on the chart shows MU stock is overbought.  Overbought stocks are susceptible to a pullback.
• As full disclosure, MU is in our portfolio.  We are long MU from $21.77.
• Micron is scheduled to report earnings today after the regular session close.  Investors have high expectations for Micron earnings given rising memory prices and momentum from the AI trade driving revenue from Micron's high bandwidth memory.
• Micron earnings will test the AI rally that was triggered by recent Nvidia moves.
• Nvidia announced a strategic partnership with OpenAI along with a $100B investment in OpenAI for data center and power capacity.  Details are being finalized, but Nvidia and OpenAI expect the first phase, which will use Nvidia's upcoming Rubin platform, to be online in the later half of 2026.
• In our analysis, Nvidia is acting as a backstop for OpenAI financing to keep the AI rally going.  Further, in our analysis, Nvidia has now become the king maker in AI.    
• IONQ Inc (NYSE:IONQ) reached a technological breakthrough in quantum computing.  IonQ demonstrated the conversion of visible photons into telecom wavelengths from its trapped-ion systems.  The breakthrough is a critical milestone to interconnecting quantum computers using existing fiber optic cables over long distances.  This is a step towards a distributed quantum internet.  Other quantum stocks like Rigetti Computing Inc (NASDAQ:RGTI), Quantum Computing Inc (NASDAQ:QUBT), and D-Wave Quantum Inc (NYSE:QBTS) are also moving on the news.  As full disclosure, we have a position in RGTI.
• Quantum computing has a very bright future and will provide significant opportunities for investors.  In our analysis, right now quantum computing stocks are way overvalued and present significant risk.  Investors need to be ultra-cautious because much of the information on quantum computing stocks in the media and coming out of Wall Street is highly promotional and not objective.  It is important for investors to understand that there are several quantum computing technologies.  It is not known at this time which technology will win.
• Investors are excited about Rocket Lab Corp‘s (NASDAQ:RKLB) two spacecraft arriving at the Kennedy Space Center.  The spacecraft will study Mars's magnetosphere.  In our analysis, space will present significant opportunities over the coming years; however, right now, space stocks are way overhyped.
• Adding to exuberance in AI, Oracle Corp (NYSE:ORCL) stock ran up yesterday on the announcement of Mike Sicilia and Clay Magouyrk as new co-CEOs.  Sicilia brings a depth of experience in applied AI and Magouyrk built Oracle Cloud Infrastructure.  This is on top of the exuberance created by President Trump's decision that Oracle will manage the TikTok algorithm.
• Fed Chair Powell will speak today around 12:30pm ET.  Powell's speech may be market moving.  We will be carefully listening for clues about future interest rate cuts.

Magnificent Seven Money Flows

Most portfolios are now heavily concentrated in the Mag 7 stocks.  For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks.  It is equally important to rise above the noise of daily news on the Mag 7 stocks.  The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks on a daily basis.  When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.

In the early trade, money flows are positive in Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc Class C (NASDAQ:GOOG), Meta Platforms Inc (NASDAQ:META), and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are neutral in Microsoft Corp (NASDAQ:MSFT).

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

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

Gold

Gold has continued to rocket with gold futures crossing $3800 as of this writing.  

China is making a major move to increase its national standing in the bullion market.  China aims to become a major custodian of sovereign gold funds.  This is taking a direct aim at the U.S.'s supremacy in this area.  

Bitcoin

Bitcoin (CRYPTO: BTC) is range bound.  Money continues to flow out of bitcoin and Ether (CRYPTO: ETH) in to gold ETF (GLD) and silver ETF (SLV).

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.

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