DHAI

AI Trade Rally

Please click here for an enlarged chart of Direxion Daily Semiconductor Bull 3X ETF (NYSE:SOXL).

Note the following:

• Semiconductors reflect the AI trade, and SOXL is the momo crowd’s favorite.
• The chart shows SOXL is gapping up.
• The chart shows that RSI is now barely out of the oversold region.
• The move up in SOXL and the entire AI trade this morning is triggered by neocloud CoreWeave Inc (CRWV) earnings.  As of this writing, CRWV stock is up about 16%.
• There have been serious concerns about how CoreWeave would finance its data center build out.
  • The yield on the most actively traded CoreWeave bond had risen to about 15%.  The bond was originally sold with a yield of 9.625% with maturity in 2032.
  • The estimate is that if CoreWeave were to issue a similar bond now it might have needed to pay about 18% interest.
• The reason behind the AI rally in the early trade is the market likes CoreWeave’s financing map.  Here are the key points:
  • CoreWeave does not intend to go to the unsecured debt market.
  • CoreWeave is relying heavily on prepayments from customers.
  • CoreWeave is also relying on vendor financing.
  • CoreWeave intends to issue debt secured by GPUs.
• Along with CoreWeave, stocks of neoclouds Nebius Group NV (NBIS), IREN Ltd (IREN), and Applied Digital Corp (APLD) are moving higher in the early trade.  Oracle Corp (ORCL) stock these days is primarily driven by data centers, and as such, is also seeing heavy buying in the early trade.
• In our analysis, prudent investors should note that a big part of the rally in CRWV stock is driven by a short squeeze.  Since the CRWV rally is partially driven by a short squeeze, prudent investors should carefully watch if the rally is durable.  This is especially important because CRWV is the trigger for the rally in the entire AI trade.
• Adding to the positive sentiment in the AI trade is Taiwan Semiconductor Manufacturing (TSM) projecting an increase in capital spending to $60B – $64B from prior $52B – $56B.  This is bringing in buying in semiconductor manufacturing equipment stocks such as Applied Materials Inc (AMAT), ASML Holding NV (ASML), Lam Research Corp (LRCX), and KLA Corp (KLAC).  As a full disclosure, AMAT is in our portfolio, long from an average of $16. 
• In the early trade, the momo crowd is aggressively buying NVIDIA Corp (NVDA) stock.  Here are the key points for prudent investors:
  • So far, smart money flows are neutral.
  • All along, we have been sharing with you Nvidia chips are smuggled to China through countries such as Singapore and Malaysia, circumventing U.S. export controls.
  • Due to the increased scrutiny, Nvidia may see illicit sales to China drop off.  This may adversely impact Nvidia’s revenues.  
  • In our analysis, there is about a 20% probability that Jensen Huang may be forced to leave Nvidia.  If Huang is forced to leave Nvidia, NVDA stock could easily fall 25%.  If NVDA stock falls 25%, we will likely give a buy signal.  As a full disclosure, NVDA is in our portfolio, long from an average of $12.55. 
• Advanced Micro Devices Inc (AMD) is a major beneficiary of Nvidia troubles.  As a full disclosure, AMD is in our portfolio, long from an average of $205.52.  Here are the key points:
  • Nvidia’s troubles are a clear opportunity for AMD.  For years, AMD’s biggest obstacle has not just been competing with Nvidia’s GPUs.  It has been Nvidia’s enormous software ecosystem, particularly CUDA, which makes switching expensive and difficult.
  • That advantage is not disappearing, but it is becoming less formidable.  AI is making software development and code migration easier, while AMD is investing heavily in its ROCm software ecosystem and working with major AI players to improve compatibility.
  • Nvidia’s problems give AMD something money alone could not easily buy: an opening to convince customers that depending too heavily on one GPU supplier carries risks.  AMD does not need to displace Nvidia to become a much bigger winner in AI.
• As a reference, our recent buy signals in the AI trade have included trade around positions in AMD, Intel Corp (INTC), Marvell Technology Inc (MRVL), VanEck Semiconductor ETF (SMH), and ORCL.  There are also new positions in IREN and Tradr 2X Long SNDK Daily ETF (SNXX).
• In the middle of all the bullishness this morning, investors should not forget the following:
  • The Iran situation is still unresolved.
  • Inflation is high and the Fed may raise interest rates.
  • After the Democratic sweep, there may be a stand off over the government debt ceiling.

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 Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc Class C (NASDAQ:GOOG), Meta Platforms Inc (NASDAQ:META), Nvidia (NASDAQ:NVDA), Microsoft Corp (NASDAQ:MSFT), and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are negative in 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 (GLD).  The most popular ETF for silver is iShares Silver Trust (SLV).  The most popular ETF for oil is United States Oil ETF (NYSE:USO).

Oil

API crude inventories came at a build of 9M barrels vs. a consensus of a draw of 1M barrels.

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. Most recently, we correctly called the rally from recent stock market lows and the 2026 semiconductor decline before a 25% drop in the Semiconductor ETF (SMH). In gold, we bought at an average price near $1,105, close to cycle lows, and took partial profits near $5,400, close to cycle highs. Please click here to get our 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.