Risk Mispriced

Please click here for a chart of SPDR S&P 500 ETF Trust (NYSE:SPY) which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

  • Last night, S&P 500 stock futures touched the equivalent of the low band of the support zone shown on the SPY chart.
  • The chart shows the stock market has bounced from the low band of zone 1 (support) this morning.
  • RSI on the chart shows the stock market is oversold.
  • President Trump speaks often and says a lot of things about the Iran war.  For investors, below is the most important recent post from President Trump.  So far, the stock market is focused exclusively on the first part of the post and ignoring the second part of the post.
    • President Trump posted, "The United States of America is in serious discussions with A NEW, AND MORE REASONABLE, REGIME to end our Military Operations in Iran. Great progress has been made but, if for any reason a deal is not shortly reached, which it probably will be, and if the Hormuz Strait is not immediately "Open for Business," we will conclude our lovely "stay" in Iran by blowing up and completely obliterating all of their Electric Generating Plants, Oil Wells and Kharg Island (and possibly all desalinization plants!), which we have purposefully not yet "touched." This will be in retribution for our many soldiers, and others, that Iran has butchered and killed over the old Regime's 47 year "Reign of Terror." Thank you for your attention to this matter. President DONALD J. TRUMP."
  • Even though, right now, the stock market is focused only on the first part of the post, prudent investors should pay attention to the entirety of the post.  In our analysis, when the entirety of the post is taken into account, the stock market is mispricing the risk and buying on hopium.
  • Interestingly, the oil market is ignoring President Trump's post.
  • Lately, yields have been rising on inflation concerns.  However, this morning yields are coming down on hopium of a deal with Iran.
  • Economic data is ahead this week:
    • JOLTS report and consumer confidence will be released Tuesday at 10am ET.
    • ADP employment change will be released Wednesday at 8:15am ET, followed by retail sales at 8:30am ET, and ISM Manufacturing Index at 10am ET.
    • Initial jobless claims will be released on Thursday at 8:30am ET.
    • The jobs report, the mother of all numbers, will be released on Friday at 8:30am ET followed by ISM Non-Manufacturing Index at 10am ET.

Japan

Japan is important because funds have borrowed hundreds of billions of dollars in yen and invested in the U.S., lately in the AI trade.  The yen briefly touched 160 per dollar, but then bounced after there was no opposition to rate hikes in the Bank of Japan's summary of opinions.

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), Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc Class C (NASDAQ:GOOG), Meta Platforms Inc (NASDAQ:META), Microsoft Corp (NASDAQ:MSFT), NVIDIA Corp (NASDAQ:NVDA), and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are positive in S&P 500 ETF (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 (NYSE:GLD).  The most popular ETF for silver is iShares Silver Trust (NYSE:SLV).  The most popular ETF for oil is United States Oil ETF (NYSE:USO).

Bitcoin

Bitcoin (CRYPTO: BTC) is seeing buying.

What To Do Now

Give precedence to the return of capital over the return on capital.  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. 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.