A Must See Chart for Those in the AI Trade; Trump Xi Meeting 'Amazing'

AI Trade Inflection Point

Please click here for an enlarged chart of Meta Platforms Inc (NASDAQ:META).

Note the following:

• This article is about the big picture, not an individual stock.  The chart of META stock is being used to illustrate the point.
• The chart shows the drop in META stock on earnings.
• Our proprietary VUD indicator is the most sensitive measure of net supply and demand in real-time. The orange represents net supply and the green represents net demand. The chart shows the VUD indicator is orange, indicating net supply.
• Here are the key points from Meta’s earnings:
  • Earnings ex-charge came at $7.25 vs. $6.72 consensus.
  • Revenue came at $51.2B vs. $49.5B consensus.
  • Operating margin came at 40% vs. 43% last year.
  • R&D expenses rose 28% on hiring for an AI research unit.
  • Meta raised guidance on AI spending for the third time in 2025.
  • In a financing deal with an alternative investment manager, Meta moved the debt for its Hyperion data center off of its balance sheet as well as the capex off the cash flow statement. Investors should note that unlike Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc Class C (NASDAQ:GOOG), and Microsoft Corp (NASDAQ:MSFT), Meta’s data centers are not directly revenue generating; Meta’s data centers are for its own use.
  • Meta plans to offer more AI to its users through its apps.
• All of the foregoing is excellent.  Why did META stock drop?  In our analysis,  META stock dropped because the company said capital expenditure growth will be notably higher in FY2026.  To date, the trend has been the higher capital spend on AI, the higher the stock.  META stock shows the trend has changed.  When a trend changes, investors need to pay attention.  
• President Trump called his meeting with China’s President Xi ‘amazing.’  President Trump has cut tariffs on China.  So far, details are absent.  The lack of details is bringing in skepticism in a stock market that is priced for perfection.
• Yesterday’s chart in the Morning Capsule showed a move up in Nvidia stock on President Trump saying he would discuss Blackwell with President Xi.  For the sake of full transparency, the chart is unchanged from yesterday.
• It turns out that President Trump discussed Nvidia products with President Xi, but not Blackwell.
• Investors should carefully watch how NVIDIA Corp (NASDAQ:NVDA) performs as the day progresses.
• Mag7 earnings continue today with Amazon (AMZN) and Apple Inc (NASDAQ:AAPL) reporting after the close.
• Momo gurus have been wrong about what Fed Chair Powell could say.  Momo gurus being wrong is nothing new. Momo gurus have become experts at coming up with new narratives to persuade the momo crowd to buy stocks.  What is unusual is that so far, momo gurus have not come up with a new narrative after Fed Chair Powell’s press conference yesterday.  This is bringing selling into the stock market in the early trade as the momo crowd needs a constant impetus to continue buying stocks.   

Magnificent Seven Money Flows

Most portfolios are now heavily concentrated in the Mag 7 stocks.  To get an edge, investors need 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 (AAPL) and Alphabet (GOOG).

In the early trade, money flows are negative in Amazon (AMZN), Meta (META), NVIDIA Corp (NVDA), Microsoft (MSFT), 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 seeing 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.

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.

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.