The Momentum Play Continues

Technical indicators on Invesco QQQ Trust Series 1 (QQQ) show the ETF trading above its support zone, with RSI suggesting the market could move in either direction. Nothing particularly revealing there, but what's more interesting is how traders are responding.

The momentum trading crowd has developed a pattern: buy every single dip in tech stocks and cryptocurrencies, no matter how small. This morning follows that exact playbook, with aggressive buying in both tech names and Bitcoin happening right out of the gate.

Here's the uncomfortable part. The momentum crowd has already suffered massive losses. Yet the call from momentum trading gurus remains consistent: buy more now to make up for what you've lost. It's the classic doubling-down strategy, and the numbers tell a brutal story.

Take Strategy Inc Class A (MSTR), the Bitcoin treasury company that's become a favorite of momentum traders. The T-Rex 2X Long MSTR Daily Target ETF (MSTU), which offers leveraged exposure to the stock, collapsed from a high of $19.82 to $1.17 as of premarket trading. That's a 94% wipeout. And yet, the buying continues.

OpenAI Sounds the Alarm

In AI development news, OpenAI CEO Sam Altman has declared a "code red" to improve ChatGPT's capabilities. The goal? Better compete with Alphabet Inc Class A (GOOGL) and its Gemini 3 model.

This is exactly what market watchers have been anticipating: several cycles of different large language models leapfrogging each other. No single company maintains a permanent lead. Instead, we're seeing a pattern where one AI model pulls ahead, prompting competitors to scramble and innovate, which then pushes them into the lead position. The cycle repeats.

Money Rotation in Motion

In a reversal of recent trends, money is flowing back into NVIDIA Corp (NVDA) and out of Alphabet Inc Class C (GOOG). The rotation highlights how quickly sentiment can shift in the AI space as competitive dynamics evolve.

Meanwhile, Mongodb Inc (MDB) delivered a standout performance. The database company reported earnings that beat both consensus estimates and whisper numbers, boosted by AI workloads. The stock jumped 23% in premarket trading on the news.

Manufacturing Weakness Persists

The ISM Manufacturing Index came in at 48.2, missing the consensus estimate of 49.0. More significantly, this marks the ninth consecutive month the index has registered below 50, which indicates contraction in manufacturing activity. The sustained weakness suggests ongoing challenges in the manufacturing sector.

President Trump was scheduled to make an announcement at 2pm ET, preceded by a cabinet meeting. Market participants expected the announcement could potentially move markets.

Magnificent Seven Money Flows

Most portfolios have become heavily concentrated in the Magnificent Seven stocks, making daily money flow monitoring in these names increasingly important for portfolio management.

In early trading, money flows showed positive momentum in Amazon.com, Inc. (AMZN), Alphabet (GOOG), Meta Platforms Inc (META), Nvidia (NVDA), and Tesla Inc (TSLA).

Money flows remained neutral in Apple Inc (AAPL) and Microsoft Corp (MSFT).

Looking at broader market ETFs, early money flows were positive in both SPDR S&P 500 ETF Trust (SPY) and the Nasdaq 100 ETF (QQQ).

Crypto Buying Intensifies

Bitcoin is seeing aggressive buying activity, with momentum traders piling back into the cryptocurrency despite recent volatility and substantial losses in related positions.

Portfolio Strategy Considerations

For long-term investors, continuing to hold quality existing positions remains appropriate. However, based on individual risk preferences, consider maintaining a protection band consisting of cash, Treasury bills, or short-term tactical trades, along with short to medium-term hedges.

This approach allows investors to maintain downside protection while still participating in potential upside moves. You can determine your appropriate protection band by combining cash holdings with hedge positions. Conservative or older investors should lean toward the high end of protection bands, while aggressive or younger investors can use lower protection levels.

For those who don't use hedges, total cash levels should exceed the baseline recommendations but remain significantly below the combined cash-plus-hedges allocation.

A protection band of 0% represents a very bullish stance with full investment and zero cash. A protection band of 100% indicates a very bearish position requiring aggressive protection through cash and hedges or active short selling.

It's worth emphasizing: you can't capitalize on new opportunities if you're not holding sufficient cash. When adjusting hedge levels, consider using partial stop quantities for individual stock positions, wider stops on remaining quantities, and allow extra room for high beta stocks that move more dramatically than the broader market.

Bond Allocation Thoughts

For investors following traditional portfolio construction, probability-based risk-reward analysis adjusted for inflation doesn't currently favor long-duration strategic bond allocations.

Those maintaining the traditional 60/40 split between stocks and bonds should focus on high-quality bonds with durations of five years or less. Investors willing to add sophistication might consider using bond ETFs as tactical positions rather than strategic core holdings at this time.

The key for momentum traders and long-term investors alike is recognizing the difference between catching a legitimate trend and chasing losses. The AI trade continues evolving, with leadership rotating among players as competitive advantages prove temporary. That's the nature of rapidly advancing technology—no moat stays wide forever when innovation cycles compress.