Key Resistance

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 that yesterday's rally approached the low band of zone 1 (resistance).
  • The chart shows a big gap up.
  • The chart shows yesterday's rally after the big gap was on low volume.  Smart money is watching volume divergence at key resistance.
  • The chart shows the stock market is pulling back slightly this morning.
  • RSI on the chart shows the stock market is now slightly overbought.
  • Due to lack of volume confirmation, here is the key question for investors: Is the gap an exhaustion trap or is it a springboard higher?  Looking at the history of similar patterns shows that about half the time it turns out to be an exhaustion gap and the market moves lower, while the other half of the time the stock market launches higher in a powerful way.  History is not instructive here.
  • In our analysis, what happens next in the stock market is dependent upon five factors we shared with you in yesterday's Morning Capsule.  We wrote:
  • The ceasefire is fragile.  The statements from Iran and the U.S. as to what has been agreed upon are remarkably different.  Will Iran and the U.S. reach a final agreement?  It will come down to how much President Trump wants to overlook to declare victory.
  • The probability of hostilities resuming again is low but not zero.
  • Despite all the damage Iran has sustained, Iran is in a strategically stronger position now than it was before the war started, provided the current regime does not collapse because of infighting.  If the current regime does not collapse, in the long term, this war is negative for the U.S.  However, if the current regime collapses, the long term will be very positive for the U.S.
  • Important inflation data is ahead.  If inflation is hot, expect Wall Street to dismiss it with claims that the hot inflation was due to the war.
  • Earnings season is ahead.  Corporations have been raising prices.  As such, expect earnings to be good.  In those cases where earnings are not good, expect Wall Street to rationalize that it is the result of war and issue buy signals.
  • PCE is the Fed’s favorite inflation gauge.  Core inflation came slightly higher than expected.  Here are the details:
    • Headline PCE came at 0.4% vs. 0.4% consensus.
    • Core PCE came at 0.4% vs. 0.3% consensus.
  • The U.S. economy is 70% consumer based.  For this reason, prudent investors pay attention to personal income and personal spending.  Personal income fell off the cliff, but consumers continued to spend.  Here are the details:
    • Personal spending came at 0.5% vs. 0.6% consensus.
    • Personal income came at -0.1% vs. 0.5% consensus.
  • Initial jobless claims came at 219K vs. 215K consensus.  This indicates employment is stable.
  • Q4 GDP-third estimate came at 0.5% vs. 0.7% consensus.  In our analysis, this number is weaker than expected, but it is a lagging indicator and the Iran war has already boosted the economy.  
  • Q4 GDP deflator-third estimate came at 3.7% vs. 3.8% consensus.
  • Consumer Price Index (CPI) will be released tomorrow at 8:30am ET.
  • Talks with Iran start in Islamabad, Pakistan tomorrow.  Iran is warning that continued Israeli attacks on Lebanon will make talks meaningless.
  • Prudent investors should note oil has been moving higher as Iran has stopped passage through the Strait of Hormuz due to Israeli strikes on Lebanon.
  • It is important to emphasize the phrase "especially on a pullback" in yesterday's Morning Capsule as it relates to deploying cash and taking profits on hedges.

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 Meta Platforms Inc (NASDAQ:META).

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

In the early trade, money flows are negative in S&P 500 ETF (SPY) and Nasdaq 100 ETF (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).

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.