Best AI Trade: Nvidia vs Microsoft
Welcome to this week's Power Trading Markets newsletter! It was another busy week of earnings, data reports, and comments from the Fed. Tech companies with A.I. connections saw added interest while reports on the state of the labor market were prominent as well. At home, I was able to learn another important lesson via my book club - which has certainly picked up in recent weeks. Not only have our discussions grown more active but the utility of these discussions continues to reveal themselves.
As we dive into the world of trading and investment strategies, it's essential to remember that knowledge can be found in unexpected places. Just like the biographies of famous individuals often emphasize the importance of reading books and magazines, our own journey to financial success can be enhanced by exploring diverse topics.
In a world where reading seems to be on the decline, a group of friends, including myself, sought a way to ignite intellectual curiosity and foster meaningful conversations. Thus, our club was born—a place where we tackle controversial topics, debate, and venture into unfamiliar territories. Last week, we delved into the intriguing benefits of hot saunas, and this time around, we found ourselves captivated by the biography of none other than the brilliant Albert Einstein. What do we really know about one of the most famous and influential minds of the 20th century?
Einstein's theory of relativity, a concept that had eluded my grasp despite previous encounters, became the focal point of our discussions. Armed with the power of the internet, we embarked on a journey of research and discovery. Fun facts about Einstein's personal life emerged, highlighting the interplay between his scientific mind and religious convictions, shedding light on his involvement in nuclear research, and even unraveling how he spent his Nobel Prize money.
Following the reading of his biography, as well as an array of YouTube videos, we unraveled the foundations of quantum physics, realizing that the entire field hinges on the assumption that the speed of light is constant. Visualizing the curved path of a flashlight when traveling at the speed of light, we comprehended how distance increases while time slows down to maintain a constant speed. These "aha" moments not only enhanced our understanding of physics but also deepened our bonds as friends.
However, our quest for knowledge did not end there. Several members of our book club brought up additional resources and works of fiction. For example, Isaac Asimov's writings on parallel universes, though based on science fiction, prompted us to question the validity of our assumptions within our galaxy, opening the door to further exploration and future discussions.
The underlying truth is that as we age, our hunger for intellectual growth intensifies. We crave the challenge of stepping outside our comfort zones and venturing into unfamiliar domains, be it mathematics, physics, music, literature, or any other field that broadens our perspectives.
To become better traders, we must embrace this philosophy. By familiarizing ourselves with basic concepts in physics, statistics, and accounting, we gain a deeper understanding of how price changes over time and the significance of acceleration in stock price movements. It's about acquiring the tools to navigate the financial landscape with confidence and insight.
Which is exactly what we do here at YellowTunnel. Not only do we aim to provide the technical tools you need to inform and follow trades, but we also provide a community to exchange, test, and review these ideas. By challenging ourselves to explore unfamiliar territories, we unlock new dimensions of understanding and our potential as traders reach new heights.
In the spirit of pushing boundaries, I suggest reviewing our latest Strategy Roundtable, which we hold weekly on YellowTunnel. I also recommend checking out our latest Roundtable webinar in its entirety below:
How To Trade a Bear Market Strategy Roundtable
With the unpredictable nature of the market and the uncertainty ahead of us, I can’t emphasize enough how vital it is for our readers and members of the Yellow Tunnel community to keep referring to our Live Trading Room so as to maintain a close tie of how our I and my AI platform is navigating us in and out of select trades. It’s FREE and I highly encourage everyone to sign up to the Live Trading Room and keep checking in throughout the trading day.
Every Monday and Wednesday, I highlight our best strategies and potential trading setups via the DISCORD server. It’s the future of bringing together a trading community’s total services, educational products, live chat venues, support, news, how-to tutorials, webinars, live-trading demonstrations, and tons of market analysis. It is incredibly interactive and full of crucial and timely information. Just go to:
Let us embark on this enriching journey together, driven by our curiosity, passion, and the belief that expanding our horizons leads to financial success.
Recent Trade Review
In this section, let's take a closer look at a recent trade that took place in our Platinum Power Trader services. If you missed the live trading room session on Wednesday, you can catch the recording (no membership required just create a free account) here: Live Trading Room Recordings
Our proprietary PPT model identified an intriguing opportunity with $IWM, and we decided to execute a bearish call spread. The rationale behind this trade was to capitalize on the elevated implied volatility and collect the additional premium. We held this position for a couple of weeks to maximize potential returns.
The strategy we employed was selling out-of-the-money (OTM) premium. By doing so, we aimed to generate a return of 0.5-1% by holding the position overnight. When selecting trades, we focus on liquid names with weekly options available. It's worth noting that approximately half of the option volume consists of weekly options and those with a zero-day-to-expiration (0 DTE) time frame. This provides us with ample opportunities to collect premium by selling OTM puts and utilizing call spreads, especially in a bear market scenario.
Our A.I. model played a significant role in the success of this trade. These results using the forecasted trends showcased the effectiveness of our strategy and provided valuable insights into market trends and potential opportunities.
One notable advantage of our paid services over the free offerings is the availability of SMS messages. We ensure that you receive timely alerts for entering and exiting trades, enabling you to make informed decisions efficiently. This level of prompt communication is invaluable in the fast-paced world of trading.
If you haven't already, I highly recommend joining our live trading room to gain further insights into our strategies and stay up to date with the latest trades. Here's the link to access the live trading room recordings: Live Trading Room Recordings
Stay tuned for more trade reviews and updates in our future newsletters. Remember, timely information and expert analysis can make a significant difference in your trading success.
CURRENT TRADING LANDSCAPE
The U.S. stock market closed the week on a positive note, recovering from a sluggish start and gaining momentum as progress on debt ceiling negotiations buoyed investor sentiment. Additionally, an unexpectedly robust jobs report for May added to the positive outlook. As traders and investors prepare for the upcoming Federal Reserve meeting, the likelihood of a rate pause is being reconsidered in light of the stronger economic indicators. However, concerns lingered over the health of the consumer sector and Chinese manufacturing contraction, adding a note of caution to the overall market sentiment.
Robust Jobs Report Outperforms Expectations:
The U.S. Labor Department reported a significant increase in job growth for May, surpassing economists' expectations. The economy added 339,000 jobs, well above the projected 186,500. This impressive jobs report holds great importance as the Federal Reserve gears up for its June 13-14 meeting. The unexpected strength in the job market has prompted investors to reassess the likelihood of a rate pause at the upcoming meeting. Despite the positive employment figures, the unemployment rate rose more than anticipated, introducing a slight element of concern.
Debt Ceiling Deal Sparks Market Rebound:
Thursday witnessed a notable rebound in U.S. stocks, recovering from earlier losses, as the House of Representatives approved a deal on the U.S. debt ceiling. This positive development allowed investors to shift their attention to the impending Federal Reserve meeting and the eagerly anticipated release of the jobs report on Friday. However, the consumer sector's outlook was marred by downbeat forecasts from retail giants Macy's and Dollar General. Furthermore, the contraction of the Chinese manufacturing industry cast a shadow over market sentiment.
Market Optimism Continues into June:
Following a month of losses, U.S. stocks kicked off June on a positive trajectory after the debt ceiling deal was reached. The resolution of this crucial issue alleviated concerns of a potential default, enabling investors to refocus on other market-moving events, including the upcoming Federal Reserve meeting. The deal's passage also brought some stability to the political landscape, as it faced opposition from both sides of the aisle.
Eyes on the Federal Reserve Meeting and Earnings Reports:
With the immediate debt ceiling issue resolved investors are now eagerly awaiting the Federal Reserve's decision on interest rates. The jobs report released on Friday will provide crucial insights into the likelihood of another rate hike. Currently, traders are pricing in a higher probability of the headline interest rate remaining unchanged, indicating a shift in expectations following comments from Federal Reserve officials. Meanwhile, notable earnings reports, such as those from Macy's, Dollar General, Broadcom, and Dell, will shed light on the consumer sector's health and technology industry's performance and growth prospects.
Global Factors Impact Sentiment:
Early indications of a contraction in Chinese manufacturing had a negative impact on market sentiment, with futures declining in response. This sentiment carried into the trading day, setting the tone for various markets. While official PMI data suggested a contraction in manufacturing activity, a private gauge provided a slightly more positive outlook, leading to mixed reactions in Asian markets. In Europe, stock markets experienced a rise driven by data showing a drop in eurozone inflation, suggesting potential implications for monetary policy decisions.
Market Outlook:
The market has been trading in a sideways pattern, suggesting a lack of clear direction. However, as we move into the second half of the year, we can expect more volatility in the market. We are watching the overhead resistance levels in the SPY, which are presently at $430 and then $437. The $SPY support is at $420 and then $416. We remain MARKET BEARISH at this time and encourage subscribers to hedge their positions. See SPY Seasonal Chart:
Several factors have contributed to this uncertain environment, including a strong dollar, sell-offs in Europe and China, and disappointing Chicago PMI data. While AI stocks have performed well, there are signs of them rolling over, warranting a closer review of companies such as AI, AMD, and NVDA. Additionally, interest rates have started to pull back, leading to a rally in GLD/SLV.
It is crucial to review the Services and Manufacturing PMI data to assess the potential impact on the market. The unwinding of trades, accompanied by falling interest rates and rising gold prices (GLD), has contributed to a decline in equity markets. However, the positive unemployment data supports the notion of a soft landing rather than a recession, emphasizing favorable economic results.
We have witnessed a top-building process across all indexes, potentially signaling the start of a pullback. Depending on the forward-looking guidance provided during earnings reports, this pullback may accelerate in the coming weeks. Both the 2-year and 10-year yields have dropped below multi-month support levels. Of particular interest is the 10-year yield, which I am closely monitoring around the 3.5% mark. If the yield fails to hold between 3.2% and 3.5%, it is likely that we will see the market's top for the next few months. In such a scenario, I encourage users to consider selling into any further rallies.
During market sell-offs, investors tend to turn to safe-haven assets such as gold, silver, the dollar, and treasuries (TLT). A new recession theme emerges, and it appears that the bear market has resumed. With the top-building process underway, it is unlikely that we will see new market highs this year. This process typically takes a few weeks to set, and I expect the pullback to begin by the end of June.
Small caps, represented by IWM, as well as banks and industrial sectors, have experienced a marginal bounce back from the recent sell-off. However, it is important to note that the market's support is heavily reliant on the performance of only 20 out of the 500 companies in the SPY. This narrow leadership highlights the need for diligent stock selection and risk management in the current market environment.
Conclusion: A Market for Stock Pickers
This is undeniably a stock picker's market, where risk management should be at the forefront of investors' minds. Given the prevailing high-interest rates and historical strength of the U.S. dollar, I remain in the camp anticipating a hard landing. While there is a possibility that bulls may hold on to December lows in the coming weeks, as we approach earnings season, there is a high probability of testing and potentially breaking 52-week lows in the next few months.
With futures data already pointing to a likely 25 basis point rate hike during the June meeting, I would adopt a bearish stance this summer. It is essential to remain vigilant and adjust investment strategies accordingly in response to evolving market conditions.
The U.S. stock market closed the week with gains, propelled by progress in debt ceiling talks and an unexpectedly robust jobs report. As the Federal Reserve meeting approaches, the strong employment figures have prompted a reassessment of rate expectations. However, concerns surrounding the consumer sector's outlook and Chinese manufacturing contraction continue to influence market sentiment. As we closely monitor upcoming earnings reports and global economic indicators to gain further insights into market trends, we have identified our next Power Trading Markets Sector and Symbol of Interest.
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SECTOR SPOTLIGHT
As we navigate the current economic climate, there is a sector that continues to shine brightly, showing strong potential for profitability in the coming days. This sector, widely regarded as the driving force behind innovation and growth, is none other than technology. Specifically, one area within the technology sector that has garnered significant attention is artificial intelligence. With advancements in machine learning and data analytics, A.I. is revolutionizing various industries, from healthcare to finance. Companies at the forefront of this transformative technology are poised to benefit from its wide-ranging applications and its ability to enhance operational efficiency and decision-making processes. As we delve deeper into the potential of this sector, it becomes evident that exciting opportunities to capitalize on the ever-evolving landscape of innovation.
Technology Select Sector SPDR Fund (XLK) is an exchange-traded fund (ETF) that focuses on providing investors with exposure to the technology sector. The fund is designed to track the performance of the Technology Select Sector Index, which includes companies from various industries within the technology sector, such as software, hardware, IT services, and semiconductor companies. XLK is known for its diversified portfolio, offering investors a broad representation of the technology industry. With its emphasis on technological innovation and growth potential, XLK has gained popularity among investors seeking exposure to this dynamic sector. The fund has consistently shown resilience and demonstrated strong performance, reflecting the rapid advancements and transformative nature of technology.
XLK has shown steady growth over the past year and should continue to do so with the advancement of A.I. quickly approaching. Just as we saw this week, tech could be a strong sector and our A.I. data agrees.
Reviewing XLK’s 10-Day forecast we see a steady trend towards the upside with escalating growth and a strong vector trend. See 10-Day Predicted Data:
This is the time to be profit-taking within A.I. and tech-related symbols as the market continues to show support for these companies. With Fed uncertainty and a potential summer selloff, it would be prudent to capitalize on these gains now.
If tech is to boom, then let’s find a symbol within to rake these profits in!
TRADE OF THE WEEK - Best AI Trade: Nvidia vs Microsoft
Microsoft Corporation (MSFT) is one of the world's leading technology companies, known for its software, hardware, and cloud computing solutions. The company's flagship products include the Windows operating system, Office productivity suite, and the Azure cloud platform. Over the years, Microsoft has expanded its reach into various sectors, including gaming with Xbox, devices with Surface, and enterprise software with products like Dynamics and SharePoint. While we already saw a pop with Nvidia this week, I believe Microsoft has more room for growth and offers a better entry point. We’ve already seen NVDA sell-off to end the week after a strong pop following A.I. support. This time of pullback has put my attention on Microsoft, taking the next leap in the A.I. sugar rush, and with the history behind it, likely more sustainable pop.
With a strong focus on innovation, Microsoft continues to push the boundaries of technology through advancements in artificial intelligence, machine learning, and quantum computing. As a testament to its success, Microsoft has consistently demonstrated impressive financial performance and market capitalization, making it one of the most valuable companies in the world. Investors often view MSFT as a stable and reliable long-term investment, given the company's robust product portfolio, strong leadership, and dedication to driving technological progress.
Looking at our Stock Forecast Toolbox 10-day forecast we see several encouraging signals for the tech giant. MSFT holds a model grade of “B” putting it within our top 25% of accuracy in our data universe. Furthermore, the symbol has traded alongside XLK’s performance and based on our estimates above it looks like both XLK and MSFT are due for a fruitful June. While the summer could be bearish, we have seen evidence just this week of the power of A.I. within the tech field. Coupling that with some uncertainty in the market, I believe tech should provide a stronghold while the Fed and inflation levels continue to dominate market headlines.
Reviewing the 10-day Predicted Data for MSFT, we see a similar prognosis to that of XLK. The symbol looks to trend higher in the first few weeks of June and with the debt ceiling issue behind us, I believe it surely can!
Looking at Seasonal Charts, our premier tool for long-term forecasting, MSFT currently holds two out of the four-time frames as periods in which the symbol could move “higher” and considering the current trading landscape, I agree! See MSFT Seasonal Chart:
This week, I’ll be adding $MSFT to my portfolio!
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The consistent performance of our services is just incredible. My historical stellar performance is made possible by being right on 85.01% of all trades that I made, with an average profit of 37.35% per trade on our collective trade recommendations. To my knowledge, this trading performance is one-of-a-kind that stands alone in the marketplace for superior trading advice where our numbers and results speak for themselves.
Go to our website at www.yellowtunnel.com and make one of our services your default trading system where the AI that powers my all-world, the proprietary platform, can help you make 2023 the best trading year of your portfolio yet!
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Thank you for reading my blog. Let's have a great and memorable week!