Mythos Risk

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

Note the following:

  • The chart shows the stock market has now rallied into zone 1 (resistance).
  • The chart shows the volume yesterday was even lower than the low volume on the first day of the rally on the gap up.  This indicates that, so far, there is no volume confirmation of the rally.
  • There are two contradictory implications of the low volume:
    • The lack of volume indicates that investors broadly have not participated in this rally.  As such, if the rally continues, FOMO (fear of missing out) will kick in, and investors who have not participated will be buying at higher prices, resulting in a powerful up move in the stock market.
    • If the market starts pulling back, investors who refrained from buying into this rally will likely see that as a confirmation of their bearish beliefs and take even more capital out of the stock market, causing a rapid downturn.
  • In our analysis, which interpretation turns out to be right will depend on the success of Iran talks, economic data, and upcoming earnings.  Prudent investors should refrain from having a strong opinion about the market direction but instead consider letting the hard data guide.  
  • RSI on the chart shows the stock market has become very overbought.  An overbought market is susceptible to a pullback.
  • Anthropic's yet to be broadly released Mythos model has raised serious concern at the highest levels of U.S. financial leadership, with indications that its capabilities could materially change how quickly and effectively sophisticated cyber intrusions can be executed against critical systems, prompting urgent attention from policymakers and large financial institutions.
    • Treasury Secretary Scott Bessent and Fed Chair Jerome Powell convened bank CEOs, a notable step that underscores rising concern that advanced AI could challenge existing safeguards across the financial system.
    • Anthropic is limiting access to Mythos due to concern that its capabilities may expose previously unknown weaknesses, reinforcing the need for stronger defensive measures even as offensive capabilities advance.
    • Mythos has the potential to seriously disrupt existing cybersecurity paradigms, putting pressure on cybersecurity stocks.  Stocks such as Crowdstrike Holdings Inc (NASDAQ:CRWD), Palo Alto Networks Inc (NASDAQ:PANW), and Zscaler Inc ZS and ETFs such as Amplify Cybersecurity ETF (NYSE:HACK), Global X Cybersecurity ETF (NASDAQ:BUG), and First Trust NASDAQ Cybersecurity ETF (NASDAQ:CIBR) have come under pressure.
    • The development adds to pressure on software names as investors reassess durability of business models in an environment where increasingly capable AI can alter competitive dynamics faster than expected.  Software stocks such as Adobe Inc (NASDAQ:ADBE), Salesforce Inc (NYSE:CRM), ServiceNow Inc (NYSE:NOW), Monday.Com Ltd (NASDAQ:MNDY), Oracle Corp (NYSE:ORCL), and iShares Expanded Tech-Software Sector ETF (BATS:IGV) have come under pressure.
  • Iran talks are ahead.  Prudent investors should note the stock market is positioned for the Iran talks to be highly successful.  Due to this positioning, in case talks are not successful, there is significant downside risk to the stock market.  Having said that, it is important to note that President Trump is looking for an off ramp, and this increases the probability of success.
  • Prudent investors should ignore the just released Consumer Price Index (CPI) data.  The reason is that headline CPI includes a 21% rise in gasoline.  This is related to the Iran war and will likely come down.  Overall, gas prices have gone up by 40% – this indicates that the next set of data will also be distorted.  Here are the details:
    • Headline CPI came at 0.9% vs. 0.7% consensus.
    • Core CPI came at 0.2% vs. 0.3% consensus.

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

In the early trade, money flows are neutral in NVIDIA Corp (NASDAQ:NVDA).

In the early trade, money flows are negative in Apple Inc (NASDAQ:AAPL).

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

Bitcoin

Bitcoin (CRYPTO: BTC) is range bound.

What To Do Now

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.