Extremely Positive Sentiment

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 is seeing buying in the early trade.
  • The chart shows the volume on the rally remains low, indicating lack of conviction.
  • RSI on the chart shows that even though the stock market is going up, it is losing internal momentum.
  • In yesterday's Morning Capsule, "Investors Convinced Of Iran Deal But Oblivious To Power Struggle."  We wrote:

Investors are convinced that a deal with Iran is at hand.  However, investors are oblivious to the power struggle taking place in Iran.

  • Moderates in Iran want to make a peace deal.
  • Hardliners in Iran believe that Iran has an upper hand and do not want to give into U.S. demands.
  • After the market closed yesterday, President Trump referred to the power struggle in Iran as the reason for extending the ceasefire by saying "the Government of Iran is seriously fractured."  President Trump said the U.S. will hold off "Attack on the Country of Iran until such time as their leaders and representatives can come up with a unified proposal."
  • It appears that moderates in Iran were ready to go to Pakistan for talks with the U.S. but hardliners won the power struggle and ultimately Iran decided to not go to Pakistan for talks with the U.S.   First, the stock market dropped on the news, but then jumped up when President Trump announced he was extending the ceasefire indefinitely in response to Iran's refusal to talk.
  • In our analysis, the U.S. blockade will ultimately bring Iran to the table.  The reason is that the storage in Iran will soon get filled and Iran would have already sold its oil that is on the water.
  • The stock market momo crowd has gone giddy on President Trump indefinitely extending the ceasefire.  The momo crowd is extremely aggressive buying semiconductor stocks, AI stocks, and speculative stocks.
  • Stock market sentiment has turned extremely positive.  As a reminder, extremely positive sentiment is a contrary signal, i.e. a sell signal.  However, sentiment is not a precise timing indicator.  Sentiment can stay extremely positive for a long time.  Here are the guidelines for prudent investors:
    • Do not initiate strategic positions when sentiment is extremely positive.
    • Take partial profits on tactical positions when sentiment is extremely positive.  Yesterday, The Arora Report gave a signal to take partial profits on tactical positions established at the very bottom as the stock market has sharply run up.
    • Initiate strategic and tactical positions when sentiment is extremely negative.
  • Among important earnings, Boeing Co (NYSE:BA) and GE Vernova Inc (NYSE:GEV) reported earnings better than consensus.  AT&T Inc (NYSE:T) reported earnings worse than 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 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 (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).

Oil

API crude inventories came at a draw of 4.4M barrels vs. a consensus of a draw of 1M barrels.

Bitcoin

Bitcoin (CRYPTO: BTC) is seeing aggressive buying on the ceasefire.

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.