Unsustainable War Math - $20K Drones Vs. $4M Patriot Missiles; South Korean Rout Hammers US Stocks
The Arora Report 8 months ago
Market SummaryOpinion
Complacent Investors
Complacent Investors
Please click here for an enlarged chart of Ishares Msci South Korea ETF (NYSE:EWY).
Note the following:
- The South Korean stock market right now is acting as a canary in the coal mine for the U.S. stock market.
- The chart shows about an 11% selloff in South Korea ETF EWY overnight.
- The chart shows our buy signal on April 9, 2025 due to the tariff drop.
- The chart shows the run in South Korea ETF (EWY), including the recent parabolic move.
- The chart shows our signal to take partial profits near the top.
- As full disclosure, South Korea ETF (EWY) is in our portfolio.
- On February 12, we shared in the Morning Capsule:
- The chart shows South Korea ETF (EWY) has outperformed QQQ by 27.48%. South Korea is benefiting for two reasons:
- Two of the three major memory makers, Samsung Electronics Co Ltd (OTC:SSNLF) and SK Hynix (HXSCL), are in South Korea. Memory is in short supply due to high AI demand. At this time, investors perceive the risk in memory makers to be lower compared to other AI stocks even though memory makers, including Micron Technology Inc (NASDAQ:MU) and SanDisk Corp (NASDAQ:SNDK) have gone parabolic.
- South Korea is a big exporter of industrial goods. Industrial activity is picking up across the globe.
- There are only three major high bandwidth memory for AI manufacturers in the world: Micron (MU), Samsung, and SK Hynix.
- The crash in South Korea was triggered by the following:
- Spreading war in the Middle East, including Iran successfully hitting the heavily protected U.S. Embassy in Riyadh, Saudi Arabia
- Production at the Samsung plant in Texas being postponed until 2027
- Samsung and SK Hynix stocks crashing
- The crash in the South Korean market triggered a selloff in the U.S. stock market, especially in red hot semiconductor stocks. VanEck Semiconductor ETF (NASDAQ:SMH) is down 3.5% as of this writing in the early trade.
- Even though the momo crowd is oblivious, prudent investors should pay attention to the unsustainable math in the Iran war. There are reports that it is taking two to three interceptors, such as Patriot missiles, to intercept one Iranian drone. Iranian drones cost about $20K each, while each Patriot missile costs about $4M. It might take $12M to shoot down a $20K drone. Some estimates put the number of Iranian drones near 20K. Just do the math, there are two problems.
- If the war is not short lived, it will be very costly for the U.S. and its allies.
- There is speculation that the U.S. and its allies do not have enough of a stockpile of these interceptors.
- Rtx Corp (NYSE:RTX) is the maker of Patriot missiles. RTX stock is ripping. As full disclosure, RTX is in our portfolio, long from an average of $85.07.
- We shared with you in yesterday's Morning Capsule how Wall Street was positioned going into the Iran war and how investors were acting in the early trade on the first market day of the war. Yesterday, the stock market rallied from the lows for the following reasons:
- Positioning
- Momo crowd buying
- Investor complacency
- Momo crowd embracing risk as opposed to reducing risk
- Smart money sold into the stock market rally
- In our analysis, the momo crowd continuing to embrace more risk as opposed to reducing risk has the potential to become the driver to the downside for this market if the Iran war is not short lived.
- This morning in the early trade, there is significant selling in the stock market triggered by the crash in South Korean stocks.
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 negative 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 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 (NYSE:GLD). The most popular ETF for silver is iShares Silver Trust (NYSE:SLV). The most popular ETF for oil is United States Oil ETF (NYSE:USO).
Gold
The momo crowd is buying gold in the early trade. The buying is especially aggressive in gold ETF (GLD), silver ETF (SLV), VanEck Gold Miners ETF (NYSE:GDX), and Global X Silver Miners ETF (NYSE:SIL). Smart money is selling gold in the early trade. In our analysis, here are the reasons why smart money is selling gold:
- If oil continues to rise, it will increase inflation and, in turn, bring interest rates higher. Higher interest rates are negative for gold.
- If the momo crowd's favorite stocks drop, the momo crowd will be hit with margin calls. Historically, the momo crowd ends up selling gold and silver to meet the margin calls.
It is important to note that smart money holds large positions in gold and silver and is simply tactically thinking ahead to take advantage of strength generated by the momo crowd while holding core positions.
Bitcoin
Bitcoin (CRYPTO: BTC) is seeing selling. Yesterday's rally in bitcoin was primarily driven by the retail crowd. Bitcoin whales appear to have taken advantage to sell to the retail crowd at higher prices.
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.