Semis And Bonds At Inflection Points; Bonds Become Correlated With AI Trade; Musk Shows Flying Roadster

Inflection Points

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 that yesterday SOXL approached the low band of zone 3 (support) but did not touch it.
• The chart shows that yesterday SOXL rallied from the lows and closed near the day’s high.
• The chart shows that SOXL volume was heavy yesterday.
• The chart shows the nine day RSI reached 0.0, the most extreme oversold level RSI can be.  The chart shows that during the period shown on the chart, RSI has never been this low.
• The chart shows the breakout in the October 2 – 6 period that carried SOXL to zone 2 (resistance) failed.
• Historically, the sum total of the foregoing pattern leads to an inflection point with a short term rally.  
• Bonds hit a low after release of Consumer Price Index (CPI) data on October 14.  Since then, bonds have been rallying as money flew out of AI stocks and into bonds.    
• In our analysis, just like semiconductors, based on historical patterns, bonds are also at an inflection point and can continue to rally.  
• Prudent investors need to keep these important points front and center:
  • It is good to know history as history often rhymes, but it does not always repeat itself. 
  • Technical patterns can be helpful in the very short term, but the longer term moves come from the macro.  
• A strong correlation has developed between the AI trade and yields.  The reason is the economy is being driven by the AI trade, and the AI trade is behind a big part of inflation.  Anytime the AI trade starts faltering like it did starting Wednesday, money starts flowing into bonds and yields fall as happened Wednesday and Thursday.  This is especially noteworthy because the Producer Price Index (PPI) yesterday was hot.  Traditionally, a hotter PPI would have caused yields to spike higher, but instead, yields fell because of all of the money flow into bonds and out of the AI trade.  
• Yesterday, we shared with you the fear in neocloud CoreWeave Inc (NASDAQ:CRWV) bonds with the yield reaching 15%.  Prudent investors should note that the CoreWeave founders have been protecting themselves by selling $3.3B of CRWV stock since the IPO.  This is a reminder that smart money always protects itself.  In contrast, the momo crowd does not take risk into account and goes all in.  
• The foregoing is very important, especially at this time, since at this time 191 of S&P 500 stocks are in a bear market.
• Adding to the positive sentiment is a speech from Fed Chair Warsh.  Warsh has consistently telegraphed that he does not want to give forward guidance.  In his speech, Warsh stuck to his guns and said nothing about changing interest rates in the upcoming Fed meeting.  Wall Street is taking Warsh’s silence as an indicator that the Fed will not raise interest rates in October.
• We have been sharing with you for a while that the Fed was unlikely to raise interest rates in October.
• Oil is pulling back on Iran’s President Pezeshkian saying Iran is not seeking a nuclear weapon and is open to dialog.
• Adding to the excitement this morning is Elon Musk showing off a levitating car.  Tesla Inc (NASDAQ:TSLA) is using cold-gas thrusters from Space Exploration Technologies Corp (NASDAQ:SPCX) to achieve performance.  Tesla showed the car leaping over other cars and flipping in midair.  In our analysis, do not expect production of levitating cars from Tesla anytime soon.  Other than getting people excited, there is no commercial value at this time.

Eurozone

Eurozone September CPI came at 0.6% vs. 0.6% consensus.  In our analysis, it is an open question what the European Central Bank (ECB) will do at its next meeting.

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 (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.