Red Sea Blockade

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

Note the following:

  • Semiconductors are the leading sector that has been driving the stock market higher.  SOXL is the momo crowd’s favorite semiconductor ETF.
  • The chart shows SOXL rallied to the low band of zone 2 (resistance).
  • The chart shows that this morning in the early trade, SOXL is pulling back.
  • Coming into this morning, there were high expectations that semiconductors would continue to rally.  However, Houthis of Yemen entering the war is causing oil to rise and upsetting the markets.  We wrote on Monday:
  • Prudent investors should pay attention to an important geopolitical development – Houthis in Yemen are announcing a maritime embargo of Saudi Arabia.   This development has two major implications:
    • Houthis in Yemen stepping up will further strengthen Iran’s hand in negotiations with the U.S.
    • The export of millions of barrels of oil through the Red Sea is at risk.
  • The news this morning is that Houthis have started enforcing the Red Sea blockade.  There are reports that six ships have turned around.  The choke point is the Bab el-Mandeb Strait that separates the Red Sea from the Gulf of Aden.  Until now, Saudi Arabia has been able to shift large quantities of oil through the Red Sea.  The prospect that this route will also be closed at a time when the Strait of Hormuz is effectively closed could cause a sharp rise in the price of oil.
  • Important earnings after the market close today include Alphabet Inc Class C (NASDAQ:GOOG), Tesla Inc (NASDAQ:TSLA), and Texas Instruments Inc (NASDAQ:TXN).  International Business Machines (NYSE:IBM) will also report earnings but have pre-announced.
  • While Alphabet and Tesla earnings will catch most of the attention, prudent investors should pay careful attention to Texas Instruments earnings.  Texas Instruments is the first major semiconductor manufacturer to report.  Whisper numbers are running ahead of consensus numbers.  Texas Instruments  supplies mostly analog chips to a broad swath of industries.  Texas Instruments is also a major supplier of power management chips to AI data centers.  TXN is in our portfolio, long from an average of $192.70. 
  • Another analog semiconductor stock to pay attention to is Analog Devices Inc (NASDAQ:ADI).  As full disclsoure, ADI is in our portfolio, long from an average of $83.25.
  • Since Space Exploration Technologies Corp (NASDAQ:SPCX) has been added to several indexes, prudent investors should prepare for the volatility caused by a massive unlock of previously restricted shares.  On August 6, $116B worth of SPCX stock will become eligible for selling.  Short sellers see an opportunity.  The estimate is that about 30% of tradeable SPCX shares are now sold short.  Prudent investors should be careful about being influenced by the media.  There is a fair probability that on August 6, SPCX stock could rally if a short squeeze starts, instead of falling big time as the media is predicting.

Japan

The Japanese yen fell below 163 per dollar before recovering.  This level last occurred in 1986.  The proximate cause is rising oil due to Houthis blockading the Red Sea.  Japan is a major oil importer, getting most of its oil from the Middle East.

The fall in yen is raising alarm bells in Japan.  There are indications that the Bank of Japan is considering increasing interest rates faster.

Japan is important due to the carry trade.  In the carry trade, funds have borrowed hundreds of billions of dollars in Japan to invest in the U.S., lately in the AI trade.

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 Alphabet (GOOG) and Microsoft Corp (NASDAQ:MSFT).

In the early trade, money flows are neutral in Amazon.com, Inc. (NASDAQ:AMZN), NVIDIA Corp (NASDAQ:NVDA), and Meta Platforms Inc (NASDAQ:META).

In the early trade, money flows are negative in Tesla (TSLA) and Apple Inc (NASDAQ:AAPL).

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 build of 2.603M barrels vs. a consensus of a draw of 1.5M barrels.

Bitcoin

Bitcoin (CRYPTO:BTC) 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.