Game Of Attrition

Please click here for a chart of State Street 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 that the stock market has now pulled back below the low band of zone 1 (resistance).
  • The reaction shown on the chart to the news of failure of Iran talks and President Trump's response to blockade the Strait of Hormuz is very muted.  On Sunday evening when futures opened lower, the momo crowd aggressively bought the dip.
  • The chart shows that on Friday, the volume was even lower than the recent low volumes on the rally.  This indicates a lack of conviction.
  • Stock market bears are disappointed as they were predicting a much bigger pullback if Iran talks failed.
  • In our analysis, investors should consider the Iran talks not as a failure, but as the first step in a multi-step negotiating process.
  • In our analysis, for the time being, it is now an attrition game between the U.S. and Iran.
    • Until now, President Trump did everything he could to bring Iran to its knees with the exception of blockading the Strait of Hormuz.  Iran did not have the naval strength to break the blockade even before its navy was destroyed during the war.  Without oil exports, Iran would have been brought to its knees very quickly.  The reason President Trump did not choose the blockade early on is that it would have meant higher gas prices in the U.S.  President Trump is focused on keeping gas prices low for American consumers.  Higher gas prices risk Republicans losing the midterm election.  With an eye on oil prices, President Trump went the other way – he allowed Iranian oil at sea to be sold, and he gave India an exemption to buy Iranian oil.
    • Iran cannot sustain its economy without oil exports.  In the short term, prudent investors need to know that during the war, Iran exported an average of 1.85M barrels of crude per day.   This is a hundred thousands barrels per day more than Iran exported in the prior three months.  Iran was raking in more cash during the war than before.  Now, Iran has more cushion than it had before the war started.    
    • Now it comes down to who can hang in there longer – the U.S. with rising gas prices and upcoming midterm elections or Iran with a risk to its economy.  Objective, ongoing analysis will make a huge difference for investors.  
  • Supporting the stock market this week will be $30B – $40B of buying by Commodity Trading Advisors (CTAs).  CTAs tend to be systematic, algorithmic driven, trend followers.  They are going to buy because the trend has reversed from negative to positive.  Most CTAs do not analyze the market, other than the trend.  
  • The markets always have crosscurrents.  On Friday, University of Michigan consumer sentiment came at a 74-year low – the lowest in the history of the survey.  
  • Nasdaq 100 is rebalancing, adding SanDisk Corp (NASDAQ:SNDK) to replace Atlassian Corp (NASDAQ:TEAM).  SNDK will be added prior to the stock market open on April 20.
  • Produce Price Index (PPI) will be released tomorrow at 8:30am ET.
  • Earnings season has started with Goldman Sachs Group Inc (NYSE:GS) earnings today.  GS earnings are below whisper numbers.  Earnings from JPMorgan Chase & Co (NYSE:JPM), Wells Fargo & Co (NYSE:WFC), BlackRock Inc (NYSE:BLK), and Citigroup Inc (NYSE:C) are tomorrow morning.  Bank of America Corp (NYSE:BAC) and Morgan Stanley (NYSE:MS) will report Wednesday morning.

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 Microsoft Corp (NASDAQ:MSFT).

In the early trade, money flows are negative in Apple Inc (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc Class C (NASDAQ:GOOG), Meta Platforms Inc (NASDAQ:META), NVIDIA Corp (NASDAQ:NVDA), and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are negative 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 seeing mild selling.

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.