New High For Semiconductors

Please click here for an enlarged chart of VanEck Semiconductor ETF (NASDAQ:SMH).

Note the following:

• The chart shows semiconductors made a new high on Taiwan Semicndctr Mnufctrng Co Ltd (NYSE:TSM) earnings.  Please see yesterday's Morning Capsule.
• The chart shows that the move is extended way beyond zone 1 (support).
• The chart shows divergence on RSI.  This indicates semiconductors are losing internal momentum even though there is aggressive buying in semiconductors.
• The chart shows that during the latest rally, volume has not been very high.
• The majority of the buying in semiconductors in 2026 is coming from the momo crowd.
• Smart money is not buying semiconductors at all time highs.  The reason is smart money knows the history – semiconductor stocks always overshoot, then experience vicious pullbacks.  Here is the key question for prudent investors: Will this time be different due to AI?  Only time will tell the answer.
• This is how prudent investors should think about the answer to the foregoing question.  In our analysis, the demand for semiconductors has a very high probability of staying high for the rest of 2026 and possibly into 2027.  However, stocks are overshooting on momo crowd buying.
• As full disclosure, semiconductor SMH has the largest allocation in our portfolios.  We are long SMH from an average of $7.95.  SMH is trading at $402.01 as of this writing in the premarket.
• As full disclosure, there are also large gains on semiconductor stocks such as Applied Materials Inc (NASDAQ:AMAT) and NVIDIA Corp (NASDAQ:NVDA) in our portfolios.
• President Trump plans to direct PJM, the nation's largest grid operator, to run an emergency power auction causing big tech and data center companies to finance new power plants. Tech companies would bid for 15 year contracts worth billions of dollars.  The aim is to  speed up generation and grid hookups, cap auction prices, and limit consumer bill increases tied to AI demand.
• The momo crowd is buying stocks of power generation companies such as Constellation Energy Corp (NASDAQ:CEG) and Vistra Corp (NYSE:VST).  However, smart money is being prudent and trimming power generation stocks on this news.  The reason is smart money has large gains on these stocks, and at this time, there is not clarity if President Trump's directive will benefit power generation stocks or not.
• Silver has gone parabolic, driven by a short squeeze.  The retail momo crowd does not have access to algorithms that can truly analyze short squeezes.  The meme crowd is used to buying on short squeezes as they buy out of emotion and believe in sticking it to the hedge funds.  There is significant anecdotal evidence that the retail momo crowd is going all in on silver at these extraordinarily high prices. The short squeeze has been exacerbated by retail buying.
• In our analysis, this leg of short squeeze is showing early signs of ending.  Historically, the retail crowd almost always goes all in right near the top.  Will this time be different?  This time, there is an additional complication of China restricting the export of refined silver as of January 1.

Japan

Japan is important because of its impact on the carry trade in the U.S.

No rate hike is expected next week from the Bank of Japan (BOJ).  Expectations for a rate hike in April are increasing.

Japan's Finance Minister Katayama is hinting at a potential intervention in the market in conjunction with the U.S. Treasury.

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), Alphabet Inc Class C (NASDAQ:GOOG), Nvidia (NVDA), and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are neutral in Meta Platforms Inc (NASDAQ:META) and Microsoft Corp (NASDAQ:MSFT).

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

In the early trade, money flows are positive 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 (NYSE:SLV).  The most popular ETF for oil is United States Oil ETF (NYSE:USO).

Bitcoin

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.

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