Buying On Powell Testimony, Intel Becomes A Favorite AI Play But Chart Has A Lesson For AI Bulls

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

Lesson For AI Bulls

Please click here for an enlarged chart of Intel Corp (NASDAQ:INTC).

Note the following:

• This article is about the big picture, not an individual stock.  The chart of INTC stock is being used to illustrate the point.
• The chart shows that INTC has become a favorite AI play.
• The chart shows a big recent move in INTC as Wall Street wakes up to the demand for AI PCs that is ahead.
• The chart shows the Arora buy zone.  The Arora call was ahead of Wall Street, anticipating demand for AI PCs later this year.
• The chart has a valuable lesson for AI bulls.
  • The chart shows that INTC stock was running up last year on AI excitement.
  • The chart shows INTC stock traced a double top.  A double top is a negative technical pattern.
  • The chart shows that the double top was followed by earnings less than whisper numbers, leading to a big drop in the stock.
  • What you see on the INTC chart can potentially also happen to today’s AI darlings such as NVIDIA Corp (NASDAQ:NVDA), Advanced Micro Devices, Inc. (NASDAQ:AMD), Micron Technology Inc (NASDAQ:MU), Super Micro Computer Inc (NASDAQ:SMCI), Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM), Arm Holdings PLC - ADR (NASDAQ:ARM), and Applied Materials, Inc. (NASDAQ:AMAT).  Therefore, it is important for investors to have access to a reliable independent research resource that provides a balanced view and is not a permabull.
• The chart shows INTC stock is entering a new resistance zone.  The attractiveness of Intel is that if China attacks Taiwan, INTC stock can spike north of $100.
• Here is a good example of intermarket analysis that can give you a big edge.  Chinese stocks, especially AI stocks, are very inexpensive compared to U.S. stocks.  However, there is a risk in buying Chinese stocks. The intermarket analysis shows that the combination of using INTC stock as a hedge and buying certain Chinese ETFs when they dip in the buy zones has merit.  As full disclosure, The Arora Report buy zones on Chinese ETFs and specialty ETFs with large holding in China are in The Arora Report ZYX Emerging.  ZYX Emerging has continuously covered China for 17 years.
• Powell is testifying in front of Congress.
  • There is buying ahead of Powell’s testimony.
  • Powell is expected to be dovish.
  • Powell is expected to say that inflation is coming down and the Fed wants to see more evidence before cutting interest rates.
  • Powell is also expected to comment on the weakening labor market.
  • The market is likely to read Powell’s comments to mean that a rate cut is coming in September.
• In The Arora Report analysis, the probability of a rate cut in September is 70%.  
• It is important for investors to follow Arora’s Second and Third Law of Investing and Trading.  The second law states, “Nobody knows with certainty what is going to happen next in the markets.”  The third law states, “Making investing and trading decisions based on probabilities is the only realistic and profitable approach.”
• As a note of interest, Helen of Troy Limited (NASDAQ:HELE), the maker of brands such as Vicks and Revlon, is falling about 30% on earnings coming below whisper numbers.  This shows that the market is punishing earnings misses.

Magnificent Seven Money Flows

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

In the early trade, money flows are neutral in Tesla Inc (NASDAQ:TSLA) and 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 (ASCA:USO).

Bitcoin

Bitcoin (CRYPTO: BTC) is range bound.

Protection Band And What To Do Now

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

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 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.