Smart Money Turns Cautious; Retail Buying Fueled By Palantir, AMD And Rate-cut Optimism – Advanced Micro Devices (NASDAQ:AMD), SPDR S&P 500 (ARCA:SPY)

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

Extremely Positive Sentiment

Please click here for an enlarged chart of Advanced Micro Devices Inc AMD.

Note the following:

• This article is about the big picture, not an individual stock.  The chart of AMD is being used to illustrate the point.
• The chart shows the previous run up in AMD stock, pushed higher by momo crowd buying.
• The chart shows the previous jump up in AMD stock on gamma squeeze. 
• The chart shows the subsequent drop in AMD stock, pulling back to the bottom band of zone 2 (support) on the tariff lows.
• The chart shows AMD stock has rapidly climbed back to zone 1 (resistance).
• Prudent investors should note the steep angle of the recent trendline.  Often, such steep trendlines are seen when there is a substantial new development.  In the case of AMD, there is no such development.  The rise in AMD stock is due to hopium about the future and buying by those who missed NVIDIA Corp (NVDA).
• Advanced Micro Devices will report earnings after the regular session close today.
• In yesterday’s Morning Capsule, we shared with you Palantir Technologies Inc (PLTR) earnings would impact the sentiment in the entire stock market.   Palantir earnings exceeded the high bar.  PLTR stock is up nearly 7% as of this writing in the premarket. Here are the details:
  • Palantir revenues rose to over $1B for the first time.
  • Palantir revenues grew 48% vs. 38% consensus.
  • Operating income came at $269M.
  • Palantir raised full year guidance to $4.14B – $4.15B in revenue, up from $3.89B –  $3.9B.
• Palantir earnings have added to the extremely positive sentiment.  AMD earnings have the potential to add to the extremely positive sentiment or dampen it.
• Nuclear tensions between the U.S. and Russia have escalated.  During President Trump’s first term, he withdrew the U.S. from the 1987 Intermediate-Range Nuclear Forces (INF) treaty with Russia.  At the time, Russia said if the U.S. did not deploy missiles, then Russia would not deploy missiles.  Now, President Trump has ordered the positioning of nuclear submarines, prompting Russia to remove its self-imposed restrictions.  Russia has said it will no longer abide by the treaty and will deploy nuclear missiles.
• Yesterday, the stock market rally was driven mainly by retail investors.  Super excited retail investors are getting more excited about the prospect of a rate cut.  In contrast to retail investors’ super excitement, smart money is preparing for a potential pullback.  
• ISM Services data was released at 10am ET.
• President Trump continues to push geopolitical objectives with tariffs.
  • President Trump is pushing India into a corner due to India importing Russian oil.  About one third of Russian oil is exported to India.  Even though about one half of Russian oil is exported to China, President Trump, at least publicly, is not pushing China on the issue because China has turned the tables on President Trump with rare earth minerals.
  • Switzerland is paying for its neutrality.  Switzerland received very high tariffs of 39%.  The Swiss president is planning to fly to Washington to get a better deal.
  • Previously, Brazil received 50% tariffs in President Trump’s attempt to help Bolsonaro who is on trial for an attempted coup.  The Supreme Court of Brazil has ordered Bolsonaro to be placed under house arrest.  Investors should watch how President Trump responds.

Magnificent Seven Money Flows

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

In the early trade, money flows are neutral in Apple Inc (AAPL), Tesla Inc (TSLA), and Meta Platforms Inc (META).

In the early trade, money flows are positive 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 mild selling.

What To Do Now

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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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.