Raise Hedges

There is an old saying about closing the barn door after the horses have bolted.  Most investors react only after the horses have bolted, but prudent investors proactively start closing the barn door when the horses are still inside the barn.  Right now, the horses are perfectly content inside the barn, but the risk of the horses bolting is significantly rising.  At the same time, hedges, especially at the index level, are very cheap for those using options.

We are raising raising short-term hedges and short-to-medium term hedges.

Semi Mania

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

Note the following:

  • The chart shows the semi mania has accelerated.
  • RSI on the chart shows SOXL is now overbought.
  • The trigger for yesterday's acceleration of the semi mania was a statement by NVIDIA Corp’s (NASDAQ:NVDA) CEO Jensen Huang about Marvell Technology Inc (NASDAQ:MRVL).  We previously shared with you:

Nvidia’s (NVDA) CEO Jensen Huang is saying Marvell is the next $1T company.  Marvell’s current valuation is about $190B.

  • Huang's statement caused MRVL stock to move up 32.5% yesterday, its best day ever.  As of this writing in the premarket, MRVL stock is up another 11.9%.  The reason is that the 32.5% jump in MRVL stock on Huang's statement made Marvell the largest company outside the S&P 500.  This is giving rise to speculation that MRVL will be included in the S&P 500.  Wall Street is front running the potential inclusion in S&P 500 and aggressively buying MRVL stock. If MRVL is included in the S&P 500, passive fund managers will buy MRVL stock at a super elevated price from Wall Street banks that are front running by buying MRVL now with the intention of making profits by selling to passive funds at a super elevated price.  Passive fund managers do not care about the price they pay because their mandate is to buy whatever is included in the index. 
  • As a full disclosure, MRVL is an extremely profitable position for us and we have given a signal to take partial profits on MRVL.
  • In a sign of extraordinary confidence in demand for its stock, SpaceX (SPCX) is talking about pricing the stock at $135 per share.   Normally, companies talk about the price only after the roadshow because the roadshow helps them assess the demand.  This is bringing in more optimism to the stock market.  Note, the stock market is thinking only about today because it is dominated by the momo crowd and the momo crowd does not think ahead.  Prudent investors need to think ahead – please read the June 2 article titled "Google's Massive Equity Raise Ahead Of Anticipated IPOs From SpaceX, OpenAI, And Anthropic."
  • Tariffs are back.  The U.S. is proposing a new minimum 10% tariff on many trading partners including Canada, Mexico, and the European Union over forced labor concerns.
  • Iran and the U.S. have again exchanged fire.  This is causing oil to go higher and yields to rise, but the stock market is oblivious because it is absorbed in the three manias.
  • ADP is the largest private payroll processor in the country.  ADP uses its data to give a glimpse of the jobs picture ahead of Friday's official jobs report.  ADP employment change came at 122K vs. 110K consensus.  This data is stronger than expected.  The bond market is paying attention, but the stock market is not.
  • Yesterday, JOLTS jobs data was stronger than expected.  Again, the bond market paid attention but the stock market remained absorbed in the manias.
  • The Fed's Beige Book will be released at 2pm ET.  Expect the stock market to pay no attention and stay absorbed in its manias.
  • In important news, Intel Corp (NASDAQ:INTC) is saying that there will be an increase in the supply of 3 and 18A nodes to meet increased demand.  INTC stock is jumping on the news.  You may recall that we previously shared with you that INTC stock had fallen on Nvidia coming up with a new chip to compete with Intel.
  • Given the semi mania, there is an important earning today after the close from Broadcom (AVGO).  Cybersecurity stock Palo Alto Networks Inc (NASDAQ:PANW) is falling after good earnings because the stock had run up a lot going into earnings.  Another major cybersecurity player, Crowdstrike Holdings Inc (NASDAQ:CRWD), will report earnings after the close.

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).

In the early trade, money flows are neutral in Nvidia (NVDA).

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

In the early trade, money flows are negative 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).

Oil

API crude inventories came at a draw of 6.75M barrels vs. a consensus of a draw of 3.6M barrels.

Bitcoin

Bitcoin (CRYPTO: BTC) is range bound after the previous big drop.

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.