AI Trade Test Ahead

Please click here for an enlarged chart of Micron Technology Inc (NASDAQ:MU).

Note the following:

• This article is about the big picture, not an individual stock.  The chart of MU stock is being used to illustrate the point.
• Prudent investors need to keep an eye on MU stock because lately MU stock has been leading the semiconductor mania.
• The chart shows MU stock reached zone 1 (resistance) on Monday.
• The chart shows a big drop in MU stock yesterday in sympathy with a 10% down day in South Korea.  Please see yesterday’s Morning Capsule for details.
• The chart shows that in spite of the big drop yesterday, MU stock remained above trendline 2.
• Micron will report earnings after the close today.  It is not earnings but the reaction to earnings that will matter.  In five of the last six quarters, the immediate reaction to Micron earnings was the stock fell.  The reason was that going into earnings the momo crowd aggressively bought MU stock and whisper numbers rose but Micron’s actual earnings were below whisper numbers.
• As the chart shows, this time the momo crowd has also been aggressively buying MU stock ahead of earnings, but the stock price was disrupted by a down move in the South Korean stock market.  Earnings is a risk event, both to the upside and downside.  For this reason, smart money usually does not buy before earnings because smart money cares about both rewards and risks.  On the other hand, the momo crowd buys ahead of earnings because their strategy is hopium and the momo crowd does not care about the risk.
• In our analysis, the reaction to Micron earnings will test the entire AI trade and, in turn, the entire stock market. 
• The momo crowd is oblivious, but prudent investors should pay attention to another development that will impact MU stock.  SK Hynix (HXSCL) is planning to raise $29B from U.S. investors by listing its shares in the U.S.  The SK Hynix plan could be bad news for Micron for two reasons:
  • SK Hynix will have an extra $29B to increase memory manufacturing capacity.  We have been sharing with you that more memory capacity is coming online.  The momo crowd is oblivious.  As more memory capacity comes on the line, it will reduce memory shortages.  In theory, memory prices should drop.  
  • SK Hynix ADR will give U.S. investors a second memory stock to buy in addition to MU stock.  Some institutions may sell MU stock to buy HXSCL stock.  The negative impact of this development will be cushioned because the momo crowd has been aggressively buying ETF DRAM.  DRAM holds MU, HXSCL, and Samsung Electronics Co Ltd (OTC:SSNLF).
• There are important developments in oil and gold.  Please see the appropriate sections below.

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 Apple Inc (NASDAQ:AAPL) and Alphabet Inc Class C (NASDAQ:GOOG).

In the early trade, money flows are neutral in Meta Platforms Inc (NASDAQ:META), NVIDIA Corp (NASDAQ:NVDA), and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are negative in Amazon.com, Inc. (NASDAQ:AMZN) and Microsoft Corp (NASDAQ:MSFT).

In the early trade, money flows are neutral 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 (NYSE:USO).

Gold

As of this writing, gold has fallen below the psychologically important support of $4000.  Note that our rating on gold has been negative for the short term.  As full disclosure, we are long gold from an average of $1103 and partial profits were taken as high as $5511. 

Oil

API crude inventories came at a draw of 0.765M barrels vs. a previous draw of 8.33M barrels.

Brent oil has broken below the psychologically important level of $75 for the first time since oil’s rise due to the Iran war. There are three reasons:

• Many investors are not paying attention to the fact that China is not buying oil as it used to.  China is using oil from storage. Right now, the biggest determinant of the price of oil is not Iran or the U.S., but China.  In our analysis, there are significant geopolitical implications of China attempting to wrest control of oil prices from the U.S. in an attempt to assert global leadership and hurt the U.S. dollar.
• Significant tanker traffic has passed through the Strait of Hormuz.
• President Trump’s statements

Bitcoin

Bitcoin (CRYPTO:BTC) is range bound.

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.