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Semiconductor Rally Defies Nvidia Scandal; Hot CPI; CoreWeave Earnings Ahead

The Arora Report 10 minutes ago

OpinionMarket Summary

A Powerful Edge 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

A Powerful Edge

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 support at the upper band of zone 4 (support) has held so far.  This is a positive.
  • The chart shows that yesterday SOXL staged a major rally of 22.25%.  This is a positive.
  • The chart shows that the volume was heavy but nowhere near the very heavy volume during the decline.  The interpretation of this is positive.
  • RSI shown on the chart has the following implications:
    • The chart shows the positive RSI divergence has ended.  Positive divergence was due to RSI going higher when SOXL was going lower.  Positive RSI divergence set up the conditions for yesterday’s 22.25% rally.
    • The chart shows that now the condition has flipped.  Now, there is a negative RSI divergence.  In plain English this means that as SOXL staged a huge rally, RSI went down.  This indicates that the rally may not be durable.
    • RSI shows SOXL is now oversold.  This means if there is any good news on semiconductors, semiconductors have the potential to rally.
    • The sum total of the foregoing is that the semiconductor rally may not be durable unless there is another piece of good news or there are significant quick changes in money flows, positioning, or sentiment.  In our analysis, investors should prepare for high volatility.  
  • Prudent investors can learn from yesterday how to gain a big edge in their investing and trading.  Yesterday, there was an earthquake in the form of a scandal involving Jensen Huang, CEO of the largest semiconductor company NVIDIA Corp (NVDA) and a suspected Chinese spy.  NVDA stock fell.  NVDA carries a heavy weighting in semiconductor indexes.  Due to the Nvidia scandal, the wisdom on Wall Street was that SOXL would see a significant drop.  However, we were positioned for a rally having initiated new semiconductor positions in Intel Corp (INTC), Advanced Micro Devices, Inc. (AMD), VanEck Semiconductor ETF (SMH), and Marvell Technology Inc (MRVL).   
  • Coming into yesterday morning, here was the set up in semiconductors:
    • Positioning had turned negative from being very positive not that long ago.  At critical junctions, negative positioning is a positive indicator.    
    • Sentiment was extremely negative.  We have previously shared with you that at the extremes, sentiment is a contrary indicator.  Extreme negative sentiment is a buy signal.  It is worth a reminder that sentiment is not a precise timing indicator.  
    • Momo crowd money flows were negative.  At critical junctions, negative momo crowd money flows is a positive indicator.  
    • Smart money flows were positive.  After a drop, positive smart money flows are a positive indicator.  
  • For the very short term, here is the fly in the ointment for semiconductors in the early trade this morning:
    • Positioning has quickly flipped positive. 
    • Sentiment has quickly flipped positive. 
    • Momo crowd money flows are positive. 
    • Smart money flows are neutral. Such a quick flip is rare.  If the foregoing flips had not happened, there would have been high confidence in the semiconductor rally.  However, due to the flip, now semiconductors can go in either direction in the short term. It will likely come down to one large fund making a big trade.  Wall Street machines will jump on in the same direction of the trade and the momo crowd will follow. 
  • The flip is part of the decision behind our signal earlier this morning to take partial profits on the AMD trade around position.
  • CoreWeave Inc (CRWV) will report earnings after the close.  CoreWeave is important to the entire AI trade for the following reasons:
    • CoreWeave is the epicenter of the recent drop in the AI trade.
    • CoreWeave is backed by Nvidia.
    • CoreWeave has heavily borrowed to build data centers.
    • CoreWeave bonds have dramatically dropped.
    • CoreWeave stock has dramatically dropped.
    • There is large short interest in CoreWeave stock.  Paradoxically, large short interest can trigger a short squeeze.
  • Consumer Price Index (CPI) came hotter.  Here are the details:
    • Headline CPI came at 0.4% vs. 0.3% consensus.
    • Core CPI came at 0.3% vs. 0.2% consensus.
  • In our analysis, investors should not become too concerned about hotter than expected CPI for the following reasons:
    • The data is for October when oil prices were high.  
    • In November, so far, oil prices have dramatically fallen.  
    • Oil prices have a major impact on CPI. 
    • Energy is directly part of Headline CPI.
    • Energy is not directly part of Core CPI, but energy impacts a number of items in Core CPI. 
  • Oil prices continue to fall as President Trump continues to show a conciliatory attitude toward Iran.

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 Apple Inc (NASDAQ:AAPL).

In the early trade, money flows are neutral in Alphabet Inc Class C (NASDAQ:GOOG) and Meta Platforms Inc (NASDAQ:META).

In the early trade, money flows are negative in Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corp (NASDAQ:MSFT), Nvidia (NASDAQ:NVDA), and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are negative 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 (USO).

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.

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