AI Helps Microsoft And Meta, But Consumer Angst Hurts McDonald’s

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

AI CapEx

Please click here for an enlarged chart of Invesco QQQ Trust Series 1 QQQ.

Note the following:

• The chart shows that QQQ is gapping up above its Liberation Day level.
• The chart shows QQQ is now approaching the resistance zone.
• RSI on the chart shows that QQQ is overbought but can become more overbought if there are more good tech earnings, such as those from Amazon.com, Inc. (AMZN) after the close.
• The gap up in QQQ is primarily driven by good earnings from Microsoft Corp (MSFT) and Meta Platforms Inc (META).  Both Microsoft and Meta reported earnings better than the consensus and better than whisper numbers.  Both Microsoft and Meta are benefiting from AI.
• On April 9, we published a list of the top nine stocks to buy.  MSFT stock was on the list and trading around $380 at that time.  MSFT is trading at $432 as of this writing in the premarket.
• For the AI trade, prudent investors should pay careful attention to capital spend.
  • Microsoft capital expenditures for the quarter came at $16.7B vs. $16.2B consensus, which was higher than $11B capex from a year ago.  Capital expenditure expectations for the year are unchanged.
  • Meta is increasing the high end of its capital expenditure for the year by 11% to $72B.
• NVIDIA Corp (NVDA) stock is running up this morning due to the foregoing capital spend numbers from Microsoft and Meta.
• Rising consumer angst caused McDonald’s Corp (MCD) sales in the U.S. to fall the most since the 2020 pandemic.  Same store sales in the U.S. fell by 3.6%.
• Adding to the positive sentiment this morning is that China appears to be open to trade talks.  The positive indication from China is coming after the U.S. reportedly took the initiative to contact China to open trade negotiations.
• Wall Street is front running blind money this morning – stocks are being bought in hopes of selling them to blind money later today.   Blind money is the money that flows into the stock market on the first two days of the month without any analysis irrespective of market conditions.  Blind money is typically invested in the afternoon.
• Initial jobless claims came at 241K vs. 225K consensus. The market did not expect this rise in jobless claims, but as a member of our report, you knew this rise was coming.  Jobless claims is a leading indicator.  The market is mostly focused on lagging indicators. Our reports are based on leading indicators.  
• Going forward, investors need to remember that employment is like a shoulder – it slowly declines and then rapidly falls off.  When employment falls off, this is an early indication of a potential impending recession.  
• At this time in our analysis, the probability of a recession is 40% and rising.  
• In our analysis, the biggest risk for investors continues to be potential stagflation.  
• ISM Manufacturing Index was released at 10am ET.
• The jobs report, the mother of all numbers, will be released tomorrow at 8:30am ET.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Amazon (AMZN), Alphabet Inc Class C (GOOG), Microsoft (MSFT), Meta (META), Tesla Inc (TSLA), and Nvidia (NVDA).

In the early trade, money flows are negative in Apple Inc AAPL.

In the early trade, money flows are positive in SPDR S&P 500 ETF Trust (SPY) and Nasdaq 100 ETF (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 is seeing buying. $100K is the next magnet.

Arora Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.  our proprietary Protection Band puts all of the data, all of the indicators, all of the news, all of the crosscurrents, all of the models, and all of the analysis in an analytical framework that is easily actionable by investors.

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.