Powell Shifts But Does Not Admit He Was Wrong, Opportunity In AI Driven Semiconductor Chip Equipment Maker

Author: The Arora Report | April 17, 2024 11:19am

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

A New Opportunity In AI Ahead

Please click here for an enlarged chart of SPDR S&P 500 ETF Trust (NYSE:SPY) which represents the benchmark stock market index S&P 500.

Note the following:

• The chart shows that the stock market has pulled back after breaking below the trendline.  
• The chart shows the support zone.  
• The chart shows that in spite of the pullback, the stock market is still about 5% above the support zone.  
• Powell had repeatedly made it clear that he was itching to cut interest rates. This is what initially triggered the stock market rally in 2023 and kept the stock market rally going in 2024.  
• When inflation data from January came hotter than expected, the hot inflation data went against Powell, but Powell dismissed it as a one-off. The hot inflation data for February again went against Powell, but Powell again dismissed it as a one-off.
• The chart shows when CPI data was reported for January, February, and March.   
• When the March inflation data came against Powell, prudent investors were eagerly awaiting how Powell would justify rate cuts after data went against him three months in a row. Powell has now shifted, saying that it will take longer to be confident about inflation. Powell acknowledged that progress on inflation has stalled. Powell now expects to hold interest rates at the current level longer than he previously expected.  
• In the stock market, there was a short dip on Powell’s statement. The momo crowd aggressively bought the dip. This morning, the momo crowd continues to aggressively buy stocks.  
• Due to the importance of Powell’s switch and the consequences of Powell’s error over the last several months to investors.
• As the day and the week progresses, prudent investors need to stay alert to how the market reacts to earnings. Earnings season is in full swing. So far, earnings are mixed. Prudent investors should also stay in tune with what smart money does. As a reminder, when the momo crowd aggressively bought stocks after Iran attacked Israel, smart money took advantage of the strength generated by the momo crowd to trim stocks.
• Biden wants to increase tariffs on Chinese steel and aluminum. Biden is targeting steel workers’ votes in Pennsylvania in the upcoming election. Pennsylvania is an important swing state and could potentially be the deciding factor in the election.
• Artificial intelligence has dramatically increased the demand for advanced semiconductors.  In turn, semiconductor manufacturers have been ramping up orders for advanced chip making equipment. For manufacturing advanced semiconductors, chip makers need extreme ultraviolet lithography machines from ASML Holding NV (NASDAQ:ASML). ASML is a Dutch company and is the most valuable European tech stock. New orders booked by ASML over the last quarter fell by 61% from the prior quarter as chip makers stopped buying as many advanced machines.  
  • In The Arora Report analysis, this is a temporary dip. ASML stock is down 4% in the early trade. As full disclosure, if it dips further and enters the buy zone, there will be a signal in The Arora Report ZYX Buy Alert. 
  • Another semiconductor manufacturing firm Applied Materials, Inc. (NASDAQ:AMAT) is our favorite chip equipment making stock to profit from artificial intelligence. As full disclosure, AMAT is in The Arora Report's ZYX Buy Model Portfolio. AMAT is long from $16.
  • Investing in semiconductor manufacturing equipment stocks is one of the best ways to profit from the artificial intelligence boom. This belongs in the ‘picks and shovels’ strategy. The Arora Report recommends that investors also diversify by strategy. The Arora Report uses over 50 different strategies.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Apple Inc (NASDAQ:AAPL), 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 mixed in SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust Series 1 (NASDAQ:QQQ).

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade. Smart money is inactive in the early trade.

Gold

The momo crowd is buying gold in the early trade. Smart money is inactive in the early trade.

For longer-term, please see gold and silver ratings.

The most popular ETF for gold is SPDR Gold Trust (NYSE:GLD). The most popular ETF for silver is iShares Silver Trust (NYSE:SLV). 

Oil

API crude inventories came at a build of 4.090M barrels.

The momo crowd is buying oil in the early trade.  Smart money is inactive in the early trade.

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF (NYSE:USO).

Bitcoin

Bitcoin (CRYPTO: BTC) is trading in the $62,000 range ahead of bitcoin halving.  

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

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.

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 seven 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.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.

Posted In: $BTC AAPL AMAT AMZN ASML GLD GOOG META MSFT NVDA QQQ SLV SPY TSLA USO