YOLO Rears Its Ugly Head In The Stock Market, Bitcoin Hits $65K Target, OPEC+ Extends Production Cuts

Benzinga · 03/04/2024 16:45

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

YOLO In The Stock Market

Please click here for an enlarged version of the chart of Super Micro Computer Inc (NASDAQ:SMCI).

Note the following:

  • This article is about the big picture, not an individual stock. The chart of SMCI is being used to illustrate the point.
  • The chart shows SMCI stock ran up on its addition to the S&P 500.
  • The chart shows SMCI stock is attempting to break out.
  • The chart shows the huge run up in SMCI stock this year.
  • RSI on the chart shows that SMCI is not overbought, meaning there is more upside potential.
  • SMCI has become a favorite of the momo crowd. The momo crowd incorrectly thinks SMCI has the same potential as NVIDIA Corp (NASDAQ:NVDA). Investors need to keep in mind the following:
    • SMCI moves a lot more than NVDA. SMCI is so volatile because of the small float.
    • SMCI is an assembler of servers for artificial intelligence. It uses components from NVDA, Micron (MU), and Marvell Technology Inc (NASDAQ:MRVL).
    • NVDA has a large moat to protect it that includes IP for its GPUs. SMCI has no moat and the barrier to entry for competitors is low.
    • SMCI sales are to hyperscalers like Microsoft Corp (NASDAQ:MSFT), Amazon.com, Inc. (NASDAQ:AMZN), and Alphabet Inc Class C (NASDAQ:GOOG). The reason SMCI sales are booming is that they have availability of NVDA chips. As chips become more available to competitors, SMCI will not be able to sustain its sales growth rate.
    • The momo crowd is buying SMCI due to lack of knowledge. However, there are many investors who understand and have the knowledge of SMCI’s business. Many such investors are short selling SMCI. For the time being, short sellers are being overwhelmed by the YOLO crowd.
    • Taking all of the above into consideration with the quantitative analysis screen of the ZYX Change Method, in an optimistic case, the fair value of SMCI stock is $442 - $486.
  • SMCI has become a YOLO (you only live once) stock. The YOLO crowd is dreaming of SMCI going to $5,000.
  • Prudent investors need to be mindful that back in 2020 and 2021, many stocks were run up as less informed investors shifted their mindset to YOLO. A vast majority of those stocks lost 90% of their value.  In practical terms, YOLO means when investors are willing to bet big on a stock going up, just because it is going up. They bet big without analysis or attention to risk on the theory that there is no need to think of analysis or risk because they are going to live only once so they might as well roll the dice.  
  • SMCI is just one example. Similar YOLO buying is beginning to happen in several other stocks. Prudent investors need to remember that after YOLO peaked in 2021, there was a vicious bear market in YOLO stocks in 2022.
  • YOLO is a symptom of sentiment advancing in the extreme positive zone. As we have written before, extreme positive sentiment is a contrary indicator. In plain English, this means that extreme positive sentiment is a sell signal.  As we have emphasized before, extreme positive sentiment is not a precise timing signal. Sometimes it leads to a market pullback in due course. Other times, the extreme positive condition gets relieved by sentiment simply turning positive for a period of time without a market drop.  Nonetheless, it is prudent for investors to be cautious when sentiment turns to extreme positive, with the exception of short term tactical positions.    
  • Traditionally, Apple Inc (NASDAQ:AAPL) has been a very important stock for the stock market. Of special interest to investors is that lately AAPL stock has not been doing well, but the stock market continues to go higher. Apple has just been fined $2B by the European Union for abusive practices related to music streaming.
  • As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents. Please scroll down to see the protection band.

Japan

Nikkei 225 in Japan crossed 40,000. After 34 years, the Japanese stock market has woken up. Foreigners are rushing in to buy Japanese stocks. As a full disclosure, two Japan related ETFs are in the ZYX Allocation Core Model Portfolio.

Magnificent Seven Money Flows

In the early trade, money flows are positive in NVDA and Meta Platforms Inc (NASDAQ:META).

In the early trade, money flows are neutral in MSFT and AMZN.

In the early trade, money flows are negative in AAPL, GOOG, and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust Series 1 (NASDAQ:QQQ).

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade. Smart money is inactive in the early trade.

Gold

Gold is knocking at the door of the psychological resistance level of $2100.

The momo crowd is buying gold in the early trade. Smart money is inactive in the early trade.

For longer-term, please see gold and silver ratings.

The most popular ETF for gold is SPDR Gold Trust (NYSE:GLD). The most popular ETF for silver is iShares Silver Trust (NYSE:SLV). 

Oil

OPEC+ has decided to keep its production cuts in place until June. Followers and members of The Arora Report, knew in advance as we wrote on February 28.  We wrote:

Oil is seeing buying on speculation that OPEC+ could extend production cuts through the end of the year.

The momo crowd is buying oil in the early trade. Smart money is inactive in the early trade.

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF (NYSE:USO).

Bitcoin

Bitcoin (CRYPTO: BTC) whales have taken advantage of the low liquidity to drive bitcoin over $65,000. You may recall that The Arora Report previously gave $65,000 as a target for bitcoin.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

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.

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 seven 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.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.