Potential Fourth Mania

Please click here for an enlarged chart of Direxion Daily Semiconductor Bull 3X ETF (NYSE:SOXL).

Note the following:

  • The chart shows SOXL taking a hit yesterday.  SOXL traded as high as $255.53 in the premarket yesterday and later traded as low as $204.00.  This is an eye popping 25% drop from the high to the low in one day.
  • The immediate trigger for the move was the price action in Micron Technology Inc (NASDAQ:MU) stock.   In the premarket yesterday, buying in MU stock was extremely aggressive as the momo crowd was attracted to the magnet of $1000.  We shared this magnet with you awhile ago, well in advance.  The magnet is shown in this chart from yesterday's Morning Capsule.  For the sake of full transparency, this chart is unchanged from what was published yesterday morning.  MU stock traded as high as $985 in the premarket.   As serious concerns developed around the Iran peace deal, MU stock started pulling back.  MU stock pulling back before reaching $1000 triggered selling in the entire semiconductor sector.   Later yesterday, MU stock traded as low as $888.15.
  • The very very short term indicator given in yesterday's Morning Capsule was negative at a time when markets were exuberant and there was aggressive buying.  For mania stocks, that call has proven spot on.  In yesterday's Morning Capsule we wrote:

There is extremely aggressive buying in the early trade, but the mania stocks are very overbought and thus vulnerable to a major pullback anytime. 

  • To the stock market's dismay, the U.S. and Iran have exchanged military strikes.  The U.S. says strikes were limited and the ceasefire is still in effect.  The U.S. and Iran have totally different versions of the peace deal that is claimed to be almost done.
  • Yesterday, all three manias (semis, options, and space) took a hit.  The space mania was the most resilient.
  • In our analysis, the just released PCE data has the potential to reignite the manias.
  • PCE is the Fed’s favorite inflation gauge.  PCE data came cooler than expected Here are the details:
    • Headline PCE came at 0.4% vs. 0.5% consensus.
    • Core PCE came at 0.2% vs. 0.3% consensus.
  • The U.S. economy is 70% consumer based.  For this reason, prudent investors pay attention to personal income and personal spending.  Here are the details:
    • Personal spending came at 0.5% vs. 0.4% consensus.
    • Personal income came at 0.0% vs. 0.5% consensus.
  • GDP data is weak.  Here are the details:
    • Q1 GDP second estimate came at 1.6% vs. 2.0% consensus.
    • Q1 GDP Deflator second estimate came at 3.5% vs. 4.5% consensus.
  • Durable orders data is strong.  Here are the details:
    • Durable orders came in at 7.9% vs 1.7% consensus.
    • Durable orders ex-transportation came at 1.1% vs 0.5% consensus.
  • Initial jobless claims came at 215K vs. 214K consensus.
  • There is potential for a new fourth mania in drone companies.  Drone companies have seen selling and stocks have pulled back on the prospect of peace with Iran.  However, the Trump administration is looking at providing major funding to drone companies.  The companies of interest are Red Cat Holdings Inc (NASDAQ:RCAT), Unusual Machines Inc (NYSE:UMAC), Kratos Defense & Security Solutions Inc (NASDAQ:KTOS), and AeroVironment, Inc. (AVAV).  We have positions in RCAT and UMAC, and there is a new signal on a trade around position on RCAT.

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 Meta Platforms Inc (NASDAQ:META), and Microsoft Corp (NASDAQ:MSFT).

In the early trade, money flows are neutral in Amazon.com, Inc. (NASDAQ:AMZN) and Apple Inc (NASDAQ:AAPL).

In the early trade, money flows are negative in Alphabet Inc Class C (NASDAQ:GOOG), NVIDIA Corp (NASDAQ:NVDA), and Tesla Inc (NASDAQ:TSLA).

In the early trade, money flows are neutral in SPDR S&P 500 ETF Trust (NYSE: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

It appears some bitcoin Bitcoin (CRYPTO: BTC) holders have been selling bitcoin to participate in the three manias.  

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.