Fear Of Missing Out

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 that the stock market is pulling back in the early trade but is still above the magnet as of this writing.  This is remarkable considering the following over the weekend:
    • Iran closed the Strait of Hormuz.
    • Iran fired on two Indian ships.
    • The U.S. fired on an Iranian ship and seized it.
    • President Trump said Vice President Vance and the U.S. team were heading to Pakistan on Sunday.  However, Iranians refused to go to Pakistan for talks as long as there was a U.S. blockade.  It appears that Vice President Vance is still in the U.S.
  • On Sunday evening, stock futures opened lower than Friday's close but significantly higher than anticipated based on the weekend's events.  Immediately after the open, the momo crowd aggressively bought stock futures.
  • The chart shows the rally on Friday was also on low volume.  This indicates a lack of conviction.
  • RSI on the chart shows the stock market is very overbought and is showing early signs of turning down.  This indicates a loss of internal momentum.
  • Oil futures and stock futures have responded differently to weekend developments.  Oil futures have sharply risen while stock futures have barely budged after momo crowd buying.  Until recently during the Iran war, oil futures and stock futures have been correlated.   Yesterday evening and this morning oil futures and stock futures are totally detached.  In our analysis, the reason is that oil futures are responding to the reality of what is happening, but stock futures are not.  
  • Why are stock futures so detached from reality?  Here are the two reasons:
    • The momo crowd is afflicted with extreme FOMO (fear of missing out).  As is often the case, the momo crowd believes stonks are going to the moon, and they want to be onboard.   
    • Even prudent investors do not want to sell because of the history of optimistic posts from President Trump every time the stock market starts going down.  Investors are waiting for another post from President Trump that may run up the stock market.  
  • Kevin Warsh's confirmation hearing for Fed Chair is ahead.  The whole hearing has been convoluted by the criminal case against Fed Chair Powell over building costs.  The main question for investors is how will Warsh justify rate cuts in view of sticky inflation.  In our analysis, Warsh will likely say that AI is going to be very disinflationary, and thus rate cuts will be appropriate.  
  • Prudent investors should know that Wall Street en masse is issuing calls to buy stocks on the slightest dip.
  • Stock market bears are totally demoralized.
  • In our analysis, historically, the foregoing behavior does not occur near bottoms and indicates more risk than generally believed.  

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 neutral in Apple Inc (NASDAQ:AAPL).

In the early trade, money flows are negative in 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 (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 buying.

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.