AI Breakthrouh

Please click here for an enlarged chart of Direxion Daily Semiconductor Bull 3X ETF (NYSE:SOXL).

Note the following:

  • Semiconductors are the leading sector that has been driving the stock market higher.  SOXL is the momo crowd’s favorite semiconductor ETF.
  • The chart shows SOXL has fallen below zone 2 (support).
  • The chart shows two opposing scenarios:
    • There is no other support zone nearby.  This indicates that if there is another piece of negative news, there is significant downside.
    • RSI on the chart shows that SOXL is now oversold.  As such, it can easily bounce.
  • Here is the key question: which one of the two scenarios will occur?  The answer depends on the following factors:
    • Many momo crowd accounts are receiving margin calls.  Many accounts will not be able to meet the margin calls, which will bring in more selling.
    • At some point, many momo crowd accounts will be liquidated, and others will have many positions liquidated.  After liquidation is done, the selling will exhaust itself.
    • Will smart money step in and buy?
    • In our analysis, these are precisely the type of conditions when even the slightest new news can have an outsized impact.  A tiny bit of good news can cause semiconductor stocks to fly again.  A tiny bit of bad news can deepen the selloff.
  • Selling in semiconductor stocks is causing a selloff in all tech stocks.  Selling is spreading to non-tech stocks in the early trade.
  • Our Protection Band has been rising lately.  Portfolios at the top band are protected up to 51%.  The rise in our Protection Band is in sharp contrast to Wall Street’s wisdom of buying more and more on margin at the recent top.  
  • The trigger for the selloff is an AI breakthrough in China.  A startup in China named Moonshot is touting an AI model that allegedly outperforms the top models from OpenAI and Anthropic.  The model named Kimi K3 is free to download, is fully opensource, and has 2.8T parameters.  As a reference, the estimate for Anthropic’s Claude Opus 4.8 is 1.5T parameters.
  • We have been sharing with you that Chinese AI stocks are cheap compared to U.S. AI stocks.  Only yesterday, we repeated:

 Chinese AI stocks are relatively inexpensive compared to U.S. AI stocks. 

  • Prudent investors should note that Moonshot is valued at $31.5B compared to trillion dollar valuations for Anthropic and OpenAI in the U.S.
  • Here are the key points for investors at this time:
    • The U.S. still has a six to nine month lead over China.
    • The top U.S. models such as GPT-5.6 and Fable 5 are still way more powerful than the top Chinese models.  
    • Due to the security requirements and deepening distrust between the U.S. and China, the world is likely to be divided into two camps for AI: one dominated by the U.S. and the other dominated by China.  
    • Investors should not ignore the latest accusation by President Trump that China massively interfered in the 2020 election.  
    • The volatility brings buying opportunities.
  • Space Exploration Technologies Corp (NASDAQ:SPCX) is being sold due to the scrubbing of a launch.  The fickleness of Wall Street is illustrated by the fact that investors were buying SPCX stock on projections of five to ten years from now, and now they are selling because of the scrub of one launch.  The scrubbing of launches is routine in the space business.
  • Netflix Inc (NASDAQ:NFLX) is seeing heavy selling as earnings released yesterday after the market close show slowing growth.   Going into earnings, the momo crowd had been aggressively buying NFLX stock.  The momo crowd also has large positions in NFLX.  Selling in NFLX is adding to the troubles for the momo crowd.

Housing Starts

The data shows the housing market is staying strong but may weaken in the future.  Here are the details:

  • Housing starts came at 1.427M vs. 1.328M consensus.
  • Building permits came at 1.367M vs. 1.403M consensus.

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 neutral in Apple Inc (NASDAQ:AAPL).

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

In the early trade, money flows are negative 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 (USO).

Bitcoin

Bitcoin (CRYPTO:BTC) is seeing selling along with tech stocks.

What To Do Now

Consider continuing to hold good, very long term, existing positions and add tactical positions based on signals.

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.