Disappointing Economic Data

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 S&P 500 is staying close to the magnet but having difficulty breaking above the magnet.
• The chart shows zone 1 (support).  The stock market can quickly drop into zone 1 if the U.S. attacks Iran and Iran heavily retaliates.  On the other hand, if a U.S. attack on Iran is successful or negotiations with Iran succeed without an attack, there is a fair probability of the stock market breaking above the magnet.
• Iran jitters persist.  In our analysis, the probability of a U.S. attack on Iran remains 60%.  One new option President Trump is considering is to start with a limited strike to force Iran into submission.  In our analysis, if a limited strike works, the stock market will stage a rip-roaring rally.  The risk in such a strategy is the law of unintended consequences from change – a limited strike may embolden Iran, and Iran may preemptively decide to block the Strait of Hormuz.
• Wall Street has been making a lot of money by selling private-credit to both individual investors and institutional investors.  Blue Owl Capital Inc (NYSE:OWL) is an important company in private-credit.  Two developments are serving as canaries in the coal mine:
  • Blue Owl stopped redemptions from one of its funds.
  • Blue Owl decided to liquidate $1.4B of assets to pay out to investors who want their money back.
• Blue Owl announced the sale of assets to bolster confidence that investors can get their money back.  Instead, the sale announcement lowered confidence as investors begin to question if they should stay invested in private-credit.  Stocks of all major PE firms, such as Blue Owl Capital, Apollo Global Management Ord Shs (NYSE:APO), Blackstone Inc (NYSE:BX), Ares Management Corp (NYSE:ARES) and KKR & Co Inc (NYSE:KKR), fell.
• Deeply understanding unintended consequences of change gives investors an asymmetric advantage in both capturing high alpha opportunities and preventing big draw downs.
• The stock market always has crosscurrents.  Given Iran jitters and disappointing economic data, investors should also be mindful of the positive side.  About 66% of S&P 500 components are beating the S&P 500 this year – remember S&P 500 is cap weighted.  This is the best stat going back decades.  Such strong breadth is bullish.  
• PCE is the Fed’s favorite inflation gauge.  Inflation came hotter than expected.  Here are the details:
  • Headline PCE came at 0.4% vs. 0.3% consensus.
  • Core PCE came at 0.4% vs. 0.4% consensus.
• The U.S. economy is 70% consumer based.  For this reason, prudent investors pay attention to personal income and personal spending.  The data shows consumers continue to spend, supporting the economy.   Here are the details:
  • Personal spending came at 0.4% vs. 0.2% consensus.
  • Personal income came at 0.3% vs. 0.3% consensus.
• GDP data on the surface is very weak.  Here are the details:
  • Q4 GDP Adv. came at 1.4% vs. 3.0% consensus.
  • Q4 Chain Deflator Adv. came at 3.6% vs. 3.3% consensus.
• In our analysis, investors should ignore the weak GDP data for the following reasons:
  • GDP is a lagging indicator. 
  • Going forward, GDP for this quarter is likely to be stronger.
  • Due to recent tax cuts, tax refunds are going to be significantly larger this year.  Consumers are likely to increase their spending as they get refunds.

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 Inc Class C (NASDAQ:GOOG).

In the early trade, money flows are neutral in Amazon.com, Inc. (NASDAQ:AMZN).

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

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.