Headwinds For The AI Trade

Please click here for an enlarged chart of NVIDIA Corp (NASDAQ: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 the breakout in NVDA stock above zone 1 was not sustained.
  • The chart shows NVDA stock has fallen back into zone 1 (resistance).
  • RSI on the chart shows NVDA stock can go either way.
  • NVDA stock fell deep into zone 1 yesterday for two reasons:
    • The $5B IPO of datacenter company Firmus in Australia collapsed.  Firmus is backed by Nvidia.  The reason the IPO collapsed is investors balked at the valuation.
    • There was a report that OpenAI’s run rate was $50B vs. $70B expectation.
  • The drop in NVDA stock brought in very aggressive selling in AI stocks yesterday.
  • In our analysis, prudent investors should note that the foregoing is another sign that in this next phase of AI, the character of the market, especially AI stocks, is changing.  Until recently, the market was so excited about AI that the stock market would not have cared about the collapse of an Nvidia backed IPO and OpenAI’s run rate.  All of a sudden, the stock market is now caring about such issues.  The whipsaw in AI stocks illustrates that there is now higher risk in AI stocks.  
  • After selling AI stocks yesterday, investors are buying AI stocks this morning.  The reason is that OpenAI expects to have a run rate of $70B by the end of 2026.
  • Oil has pulled back on President Trump’s statement that he does not plan to attack Iran before the midterm elections.  This is also helping to bring buyers to the stock market.
  • Also helping the stock market is that the 30-year Treasury auction yesterday went well.  Here are the details:
    • $22B 30 year Treasury bond
    • High yield: 5.618% (When-Issued: 5.617%)
    • Bid-to-cover: 2.54
    • Indirect bid: 72.3%
    • Direct bid: 20.9%
  • Space Exploration Technologies Corp (SPCX) is buying 800 MHz spectrum.  This is fueling speculation that SPCX plans to compete with AT&T Inc (T), Verizon Communications Inc (VZ), and T-Mobile Us Inc (TMUS).
  • There is a report that Apple Inc (AAPL) is cutting component orders for the iPhone 18 Pro by 15%. The reason appears to be that customers, especially in Asia, are balking at the higher price and demand is running lower than expected.  In our analysis, so far the stock market has been assuming that Apple customers are price insensitive.  Now, there is the first indication that the stock market might be wrong.  
  • Delta Air Lines Inc DAL) is cutting its outlook due to surging fuel costs.  Delta owns a refinery and thus, has been shielded from part of fuel price increases.  Delta’s announcement is hitting other airline stocks such as American Airlines Group Inc (AAL), United Airlines Holdings Inc (UAL), and Southwest Airlines Co (LUV).

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), Meta Platforms Inc (NASDAQ:META), Microsoft Corp (NASDAQ:MSFT), Nvidia stock (NVDA), and Tesla Inc (NASDAQ:TSLA).

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

Bitcoin

Bitcoin (CRYPTO: BTC) is seeing buying.

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. Most recently, we correctly called the rally from recent stock market lows and the 2026 semiconductor decline before a 25% drop in the Semiconductor ETF (SMH). In gold, we bought at an average price near $1,105, close to cycle lows, and took partial profits near $5,400, close to cycle highs. Please click here for our 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.