Positioning

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

Note the following:

  • Semiconductors are the most important sector in this market.  Leveraged semiconductor ETF SOXL is the momo crowd's favorite semiconductor ETF.  For this reason, prudent investors should keep an eye on SOXL.
  • The chart shows semiconductors gapped up on the Iran deal.
  • The chart shows that yesterday, semiconductors fell, closing the gap.  Investors should note the high volatility yesterday.   SOXL closed at $234.68 on Friday and traded as high as $274.88 on Monday.  Yesterday's high in SOXL was $274.93, and the low was $226.00.
  • In the Morning Capsule on Monday, we wrote:

Triple witching is ahead.  In triple witching, stock index futures, options on indexes, and options on stocks expire on the same day.  It appears that the positioning of market makers is such that coming into triple witching week they will buy stocks when stocks start moving higher and sell stocks when they start moving lower.  The result may be exaggerated moves.

  • The extreme upside on Monday was, in part, due to dealer positioning exaggerating the move.  The extreme downside yesterday was again due to dealer positioning.
  • The chart shows that in the early trade today, semiconductors are being bought on enthusiasm about the Iran deal for the umpteenth time.  Prudent investors should understand an important characteristic of the momo crowd.  The momo crowd continues buying on the same news again and again.  
  • The chart shows semiconductors have been bound by zone 1 (resistance) and zone 2 (support).  In our analysis, a break above zone 1 will likely trigger a vicious short squeeze, carrying semiconductors much higher.  A break below zone 1 will likely lead to the specter of a major drawdown in semiconductors.
  • In our analysis, semiconductors are highly likely to carry the entire stock market with them in whichever direction they go. 
  • The chart shows semiconductors remained well above zone 2 (support) during yesterday's pullback.
  • RSI on the chart shows semiconductors can easily go either way.
  • In our analysis, the volume on the chart shows the big drop yesterday was different in character from prior big drops.  Prior big drops were accompanied by heavier volume, as shown on the chart.  Yesterday's big drop was on low volume.  The interpretation is that yesterday's big drop was driven by dealer positioning and upcoming triple witching and not due to any fundamental reason. 
  • Space Exploration Technologies Corp (NASDAQ:SPCX) options started trading yesterday.  SPCX options experienced record first day volume of about 1.8M contracts. As full disclosure, we have a position in SpaceX SPCX. The prior record was for Meta Platforms Inc (NASDAQ:META) options in 2012 with 365K contracts.  Bullish sentiment was evident as in the first 30 minutes more than $300M worth of calls were bought.
  • The Fed leaves interest rates unchanged. This is followed by the first ever press conference by Fed Chair Kevin Warsh. 
  • Prudent investors closely watch retail sales data as the U.S. economy is 70% consumer based.  Retail sales are strong.  Here is the latest retail sales data:
    • May headline retail sales came at 0.9% vs. 0.5% consensus.
    • May retail sales ex-auto came at 0.8% vs. 0.5% consensus.
  • The lower half of consumers are hurting.  How are retail sales going up?  Here are the reasons:
    • In our analysis, the top 10% are feeling the wealth effect of the high stock market and continue to freely spend.
    • In our analysis, the lower 90% are reducing their savings rate and borrowing more.

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 Amazon.com, Inc. (NASDAQ:AMZN) and NVIDIA Corp (NASDAQ:NVDA).

In the early trade, money flows are negative in Apple Inc (NASDAQ:AAPL), Alphabet Inc Class C (NASDAQ:GOOG), Meta Platforms Inc (NASDAQ:META), Microsoft Corp (NASDAQ:MSFT), 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).

Oil

API crude inventories came at a draw of 8.33M barrels vs. a consensus of a draw of 4.5M barrels.

Bitcoin

Bitcoin (BTC.USD) is range bound.

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.