To gain an edge, this is what you need to know today.
Extreme Euphoria
Please click here for an enlarged chart of Oklo Inc (NYSEOKLO).
Note the following:
This article is about the big picture, not an individual stock. The chart of OKLO stock is being used to illustrate the point.
The chart shows extreme euphoria in OKLO stock.
The VUD indicator on the chart helps investors dig below the surface. The VUD indicator is the most sensitive measure of net supply demand in real time. The orange represents net supply and the green represents net demand.
The chart shows the VUD indicator is mostly green. Typically, when a stock goes parabolic, there are strong periods of orange in the VUD indicator; this is not the case with OKLO stock. The interpretation is extreme euphoria.
OKLO is an important stock for the entire stock market because it is developing smart modular reactors to provide nuclear power for AI data centers, OpenAI CEO Sam Altman is an ex-chairman of Oklo, Energy Secretary Chris Wright was on Oklo’s board, and OKLO is one of the most popular stocks among the momo crowd.
The euphoria in OKLO stock started building prior to President Trump’s visit to the U.K. on rumors that President Trump would announce major contracts for Oklo in the U.K.
Leading to President Trump’s visit, OKLO added $3.69B in market cap.
During and after President Trump’s visit to the U.K., OKLO added another $6.05B to its market cap.
The rampant speculation about contracts in the U.K. has nearly doubled OKLO’s market cap to $19.96B.
By now, you may be asking how big are the nuclear power contracts for Oklo in the U.K.? The answer may surprise you – President Trump did not announce any contracts for Oklo. As of this writing, there are no firm contracts for Oklo in the U.K. Does it concern the momo crowd that has been euphorically buying OKLO stock? The answer is no as they have already moved on to buying based on today’s news. This morning, the momo crowd is buying OKLO stock as the media highlights that Oklo will conduct a groundbreaking ceremony at Idaho National Laboratory for its first Aurora powerhouse. The momo crowd is oblivious that this event was long planned and is the result of old news that was already discounted.
Nuclear energy has a bright future and represents significant opportunities for investors. As full disclosure, smart modular reactor company Nuscale Power Corp SMR is in our portfolio.
Prudent investors know that the extreme euphoria in OKLO has implications for the entire stock market. The OKLO move is another data point in what we have been sharing with you that sentiment is in the extreme positive zone. Extreme sentiment is a contrary indicator. In plain English, this means sell. However, several nuances are worth a reminder:
Sentiment is not a precise timing indicator.
Sentiment can stay in the extreme positive zone for a long time.
When sentiment is in the extreme positive zone, it does not mean to sell wholesale. It means the following:
Be highly cautious in starting new strategic positions.
Most new positions should be tactical.
It is important to have strict risk controls such as appropriate position sizes and stop losses.
There is merit to trimming or taking partial profits.
As an actionable item, when sentiment is in the extreme positive zone, most investors should consider being in the upper half of our Protection Band.
President Trump announced that there will be a $100K fee for new H1B visa applicants. There is a lot of noise in the media on this matter. Investors should avoid the noise and stay laser focused on what it means for the stock market. There is a serious concern among prudent investors this morning that the new fee will reduce growth in the U.S. overall as the U.S. already suffers from a shortage of highly skilled technical professionals. Further, there is concern that the impact will be negative for the Magnificent Seven. To understand the impact, investors should consider the companies that are the largest users of the H1B program. The largest users of H1B are Amazon.com, Inc. AMZN, Cognizant Technology Solutions Corp CTSH, Alphabet Inc Class C GOOG, Microsoft Corp MSFT, Infosys Ltd INFY, Meta Platforms Inc META, Intel Corp INTC, JPMorgan Chase & Co JPM, Apple Inc AAPL, and Walmart Inc WMT. As full disclosure, we have a short position in INFY.
In our analysis, the new fee on H1B visas will neither have a negative impact on growth nor a negative impact on Mag 7 companies for the following reasons:
All of the companies named above already have extensive operations in India. These companies will simply hire more people in India instead of bringing them to the U.S.
There appears to be no impact on existing H1B holders as long as they stay with the same employer.
A big percentage of H1B holders are software coders. AI is already coding about one half of software, reducing the need for coders.
Expect companies to become more efficient using AI and thus simply employ fewer skilled engineers.
There is also a concern that Americans who will get the jobs that would have otherwise gone to H1B holders will need to be paid higher wages, and this will lead to higher inflation. In our analysis, the new fee will not lead to higher inflation because the number of jobs impacted is very small compared to the massive U.S. economy.
In our analysis, it is conceivable that the new $100K visa fee is a classic Trump technique to put pressure on India in trade negotiations that are just beginning again.
In a rare occurrence this morning, money is moving out of bitcoin BTC/USD and ether ETH/USD and into ETF for gold is SPDR Gold Trust GLD and iShares Silver Trust SLV.
The Fed’s newest member Stephen Miran will be speaking today and providing the rationale behind his dissent in the last FOMC meeting. If he is persuasive, his speech may bring buying into the stock market.
India
There is concern in the Indian stock market that the new visa fee will negatively impact India in a big way. In our analysis, the new fee will have a negative impact in the short term but will likely be a positive for India in the long term.
Magnificent Seven Money Flows
Most portfolios are now heavily concentrated in the Mag 7 stocks. For this reason, to get ahead and get an edge, investors need to dig below the surface of the Mag 7 stocks and indexes. It is equally important to rise above the noise of daily news on the Mag 7 stocks. The best way to get an edge, dig below the surface, and rise above the noise of the daily news is to pay attention to early money flows in the Mag 7 stocks and indexes on a daily basis. When there is significant news in the Mag 7 stocks that rises above the threshold of noise and impacts your entire portfolio, it is covered in the main section above.
In the early trade, money flows are positive in Apple (AAPL) and Tesla Inc TSLA.
In the early trade, money flows are negative in Amazon (AMZN), Alphabet (GOOG), NVIDIA Corp NVDA, Microsoft (MSFT), and Meta (META).
In the early trade, money flows are negative in SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust Series 1 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 selling.
Our Protection Band And What To Do Now
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.
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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.
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