Leading Indicators

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

Note the following:

  • Semiconductors are a tell for the entire stock market because semiconductors are the leading sector.
  • The chart shows that including the early trade today, the down gap has been filled.
  • The pattern on the chart shows that instead of selling on the island reversal, as is usually the case, investors bought the dip in semiconductors.
  • The next test will be if semiconductors can break above the recent high shown on the chart.  The chart shows the our signal to take partial profits on VanEck Semiconductor ETF (NASDAQ:SMH) right at the top.  As full disclosure, SMH is in our portfolio.
  • Buying in semiconductors yesterday after the stock market close was manic.  This morning in the early trade, semiconductors have pulled back from yesterday evening's manic buying.
  • The manic buying in semiconductors was triggered after earnings from Alphabet Inc Class C (NASDAQ:GOOG), Meta Platforms Inc (NASDAQ:META), Microsoft Corp (NASDAQ:MSFT), and Amazon.com, Inc. (NASDAQ:AMZN) showed capex increasing to $725B in 2026.  As we previously shared with you, the prior estimate was $650B.  
  • In our analysis, after listening to the conference calls, hyperscaler capex in 2027 is likely to go up another 10% – 15%.   
  • Semiconductors are the primary beneficiaries of higher capex.
  • Yesterday, yields rose and bonds fell on Fed Chair Powell's decision to stay at the Fed.  We previously shared with you that if Powell decides to stay, it will be harder for incoming Fed Chair Warsh to cut interest rates.  
  • After Powell's decision to stay, the gap between the 30 year bond yield and the 3 month Treasury bill reached the highest level since July 2022.  The implication is that even though Warsh is expected to suppress short term rates, long term rates are higher due to fear of inflation.
  • PCE is the Fed’s favorite inflation gauge.  Inflation came warmer than expected.  Here are the details:
    • Headline PCE came at 0.7% vs. 0.6% consensus.
    • Core PCE came at 0.3% vs. 0.3% consensus.
  • Initial jobless claims came at 189K vs. 217K consensus.  This drop is staggering.  To understand how staggering it is, consider the last time jobless claims were this low was in September 1969.  
  • The U.S. economy is 70% consumer based.  For this reason, prudent investors pay attention to personal income and personal spending.  The data shows the consumer is strong.  Here are the details:
    • Personal spending came at 0.9% vs. 0.4% consensus.
    • Personal income came at 0.6% vs. 0.4% consensus.
  • GDP data shows economic growth has slowed compared to expectations.  Here are the details:
    • Q1 GDP Adv. came at 2.0% vs. 2.1% consensus.
    • Q1 Chain Deflator Adv. came at 3.6%% vs. 3.3% consensus.
  • In important earnings, Eli Lilly And Co (NYSE:LLY) reported earnings better than whisper numbers.  Eli Lilly is increasing its forecast on optimism about the weight loss pill.  As full disclosure, LLY is in our portfolio, long from an average of $318.45.
  • Apple Inc (NASDAQ:AAPL) will report earnings in the after market.
  • In the middle of all of this optimism, some pension funds will engage in month end rebalancing.  Such rebalancing will cause billions of dollars of stocks to be sold.  

Japan

Japan threatened to intervene in the forex market, causing the yen to rise.  Interest rates in Japan are important because in the carry trade, funds have borrowed billions of dollars in Japan and invested in the U.S., lately in the AI trade.

Europe

Both the European Central Bank and the Bank of England left interest rates unchanged.

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 (AMZN), NVIDIA Corp (NASDAQ:NVDA), Alphabet (GOOG), Tesla Inc (NASDAQ:TSLA), and Apple (AAPL).

In the early trade, money flows are negative in  Meta (META) and Microsoft (MSFT).

In the early trade, money flows are positive 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 (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.