Dramatic Swing In Market Sentiment Implies Buy Or Sell?
The Arora Report 7 months ago
Market SummaryOpinion
Swing In Sentiment
Swing In Sentiment
Please click here for an enlarged chart of SPDR S&P 500 ETF Trust (NYSE:SPY) which represents the benchmark stock market index S&P 500 (SPX).
Note the following:
- The chart shows when our signal was given to raise cash and hedges one day before the Iran war started.
- The chart shows that a signal was given to deploy cash and reduce hedges. Hedges had become very profitable and it was time to book some profits.
- Yesterday afternoon, President Trump said the Iran war would end "soon." President Trump also said the operation was ahead of schedule.
- The chart shows a move up in the stock market yesterday. The move was triggered by a vicious short squeeze and extremely aggressive momo crowd buying. In the early trade this morning, the momo crowd was again buying aggressively. However, as the stock market rallied further, it has been met with selling.
- Looking ahead at various scenarios and their probabilities, the following have changed this morning:
- Sentiment has swung from extremely negative yesterday morning to extremely positive this morning.
- The interpretation of such a dramatic swing in sentiment depends on positioning. Investors gain a big edge when they understand positioning.
- When the positioning is very negative, a quick swing from extremely negative to extremely positive sentiment is a buy signal.
- When the positioning is very positive, a dramatic quick swing from extremely negative sentiment to extremely positive sentiment historically caps the upside, and often, the rally is a selling opportunity.
- Right now, positioning is very positive. For this reason, the dramatic swing in sentiment from extreme negative yesterday morning to extreme positive this morning is a new data point that is negative.
- Remember, sentiment is only one of the many data points that needs to be considered.
- Iran has responded negatively to President Trump. Iran does not want a ceasefire. In our analysis, these are the reasons:
- The Iranian regime believes that the U.S. and Israel will take advantage of the ceasefire to regroup and attack Iran again in a few months.
- The Iranian regime has come to the conclusion that the U.S. and Israel will take advantage of the ceasefire to kill the new Iranian leadership.
- The Iranian regime believes that they can last longer than the U.S.
- The Iranian regime believes that if the war continues, then the Republican party will lose the midterm elections.
- Protecting refineries of U.S. allies in the Gulf has been a top priority of the U.S. The news is a fire has broken out near a refinery in Abu Dhabi after an Iranian drone strike. This indicates that even after President Trump claimed that Iran does not have much left, the U.S. has not been able to protect the area around the refinery.
- The sum total of the foregoing is that the potential of a miscalculation both by the U.S. and Iran is much higher today than it was yesterday. Herein lies the risk. As an actionable item, investors need to understand that there is still a fair probability of the stock market falling to zone 1 (support) shown on the chart.
- A positive event ahead is that NVIDIA Corp (NASDAQ:NVDA) will hold its annual GPU Tech Conference (GTC) next week. GTC has historically been a catalyst for buying in AI stocks.
- Key economic data is ahead this week.
- Consumer Price Index (CPI) will be released tomorrow at 8:30am ET.
- Housing starts and initial jobless claims will be released Thursday at 8:30am ET.
- The Fed's favorite inflation gauge PCE, durable orders, personal incoming and spending, and GDP will be released at 8:30am ET.
- JOLTS job openings and University of Michigan consumer sentiment will be released Friday at 10am ET.
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 Tesla Inc (NASDAQ:TSLA).
In the early trade, money flows are neutral in Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corp (NASDAQ:MSFT), Alphabet Inc Class C (NASDAQ:GOOG), and Apple Inc (NASDAQ:AAPL).
In the early trade, money flows are negative in Nvidia (NVDA).
In the early trade, money flows are like a yoyo in S&P 500 ETF (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. This is reflected in gold ETF (GLD), silver ETF (SLV), VanEck Gold Miners ETF (NYSE:GDX), and Global X Silver Miners ETF (NYSE:SIL). Smart money is inactive in the early trade.
Bitcoin
Bitcoin (CRYPTO: BTC) is seeing buying. The buying is due to the extremely positive sentiment in the stock market spilling into bitcoin.
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.
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