Why We Believe The US Mulling A 10% Stake In Intel Is Negative

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

Extreme Positive Sentiment

Note the following:

• This article is about the big picture, not an individual stock. The chart of HD stock is being used to illustrate the point.
• Home Depot is important because it is the largest retailer of home improvement goods in the country. Home Depot earnings reflect the state of housing and consumer sentiment.
• The chart shows the price action on earnings release in the premarket this morning.
• The chart shows HD stock is still below the high reached last year.
• Home Depot earnings and guidance are mostly inline with whisper numbers. In our analysis, it is worth noting that the trend has improved throughout the quarter. July was the best month of the year so far with comps up 3.3%. Improving trends appear to be due to lower interest rates and consumers' increasing willingness to spend on their homes. Earnings also showed consumers are mostly undertaking small projects and foregoing large projects.
• Luxury home builder Toll Brothers Inc (TOL) reported earnings after market today.
• In surprise news, SoftBank Group Corp – ADR SFTBY of Japan is buying $2B worth of Intel Corp INTC stock. INTC stock is jumping as this is seen as a vote of confidence. The U.S. government is considering taking about a 10% stake in Intel. In our analysis, this is a negative as Intel was supposed to get about $10.9B of CHIPS Act funds for free, but now Intel may have to give up a 10% stake instead.
• Investors were encouraged by the positive signals coming from yesterday's meeting between President Trump, President Zelenskyy, and European leaders. The big change is that President Trump is now open to the U.S. participating in security guarantees for Ukraine after shying from them.
• Treasury Secretary Scott Bessent plans to raise his estimate of the amount of tariff revenue to be collected to be above $300B. The stock market is taking this as a positive.
• We have been sharing with you that sentiment in the stock market is extremely positive. The Home Depot trend and housing data (see section below) are adding more fuel to the already extremely positive sentiment.

Housing Starts

The data was stronger than expected. Here are the details:

• Housing starts came at 1.428M vs. 1.311M consensus.
• Building permits came at 1.354M vs. 1.39M consensus.

Magnificent Seven Money Flows

In early trade, money flows were positive in NVIDIA Corp (NVDA) and Tesla Inc (TSLA).

In early trade, money flows were neutral in Apple Inc (AAPL) and Microsoft Corp (MSFT).

In early trade, money flows were negative in Amazon.com, Inc. (AMZN), Alphabet Inc Class C (GOOG), and Meta Platforms Inc (META).

In early trade, money flows were neutral in SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust Series 1 (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).

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.

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.