Negative Sentiment From France Impacting U.S. Stocks – Will AI Come To The Rescue?

Author: The Arora Report | June 14, 2024 11:06am

To gain an edge, this is what you need to know today.

AI To The Rescue?

Please click here for an enlarged chart of iShares MSCI France ETF (NYSE:EWQ).

Note the following:

• In the early trade, the sentiment in the U.S. stock market is being dampened by the drop in the French market.
• On June 10, we alerted you in the Morning Capsule,

In France, President Emmanuel Macron dissolved parliament and called a snap election.  Marine Le Pen's far right National Rally won 36.8% of the vote compared to Macron's party winning 14.6% of the vote.

• The chart shows the initial drop in the French market on the news of the defeat of Macron’s party. As we previously alerted you, on June 10 in the early trade the news not only from France but also from the rest of Europe dampened the sentiment in the U.S. stock market, but the AI frenzy quickly overpowered the negatives.
• The chart shows another big drop in the French market today. The reason is threefold:
  • Opinion polls are showing that Le Pen’s far right party and related parties will finish with as many as 270 seats in the 577 seat National Assembly. If this prediction comes true, Le Pen would be winning triple the number of seats her party won in 2022.
  • Since Macron’s call for a snap election was a surprise, the expectation was that the far left parties would not have enough time to unite to fight the election and go against Macron. The fact is that far left parties have managed to quickly unite and plan to take Macron head on.
  • Macron’s party is now pinned squarely between the far left and far right.
• Thank you for all of your great questions about the French election. Here is the answer to your questions. As a reference, Macron’s party has been pro-business and pro-reform. In The Arora Report analysis, a win by the far right or far left will be an earthquake against pro-business policies, not only in France but throughout Europe.
• In The Arora Report analysis, looking ahead, a big win by either the far right or the far left in Europe will be a big negative for the U.S. stock market.  
• In the U.S. stock market, the AI frenzy has been overpowering everything else.
• In The Arora Report analysis, there is a fair probability that for the very, very short term the AI frenzy has reached a peak.  In plain English this means that there is a fair probability of a shallow pullback.   
• The market always has crosscurrents. In The Arora Report analysis, there is a positive development for the market.  The Fed’s Mester is saying that it is inappropriate to keep rates at the current level until the 2% inflation target is reached. Mester’s remarks are bringing in buying.  
• University of Michigan sentiment survey data will be released at 10am ET. It may be market moving.

Japan

Contrary to expectations, the Bank of Japan (BOJ) did not provide details on bond buying cuts. To prevent the market from overreacting, BOJ Governor Ueda left the door open for a July rate hike.  The lack of detail is adding to negative sentiment in Europe and Asia.  It is not clear as of this writing if this sentiment will carry over to the U.S.

Magnificent Seven Money Flows

In the early trade, money flows are positive in Tesla Inc (NASDAQ:TSLA) and NVIDIA Corp (NASDAQ:NVDA).

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)

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

The momo crowd is buying stocks in the early trade. Smart money is selling stocks in the early trade.

Note for new investors: Smart money often sells into the strength generated by momo crowd buying and buys into the weakness generated by momo crowd selling. Over a long period of time, investors come out ahead by adopting smart money’s ways. The exception is in a raging bull market – for very short term trades, consider following the momo crowd and not smart money.

Gold

The momo crowd is buying gold in the early trade. Smart money is inactive in the early trade.

For longer-term, please see gold and silver ratings.

The most popular ETF for gold is SPDR Gold Trust (NYSE:GLD). The most popular ETF for silver is iShares Silver Trust (NYSE:SLV). 

Oil

The momo crowd is buying oil in the early trade.  Smart money is inactive in the early trade.

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF (NYSE:USO).

Bitcoin

Bitcoin (CRYPTO: BTC) is range bound.

Protection Band And What To Do Now

It is important for investors to look ahead and not in the rearview mirror.

Consider continuing to hold good, very long term, existing positions. Based on individual risk preference, consider a protection band consisting of cash or Treasury bills or short-term tactical trades as well as short to medium term hedges and short term hedges. This is a good way to protect yourself and participate in the upside at the same time.

You can determine your protection bands by adding cash to hedges. The high band of the protection is appropriate for those who are older or conservative. The low band of the protection is appropriate for those who are younger or aggressive. If you do not hedge, the total cash level should be more than stated above but significantly less than cash plus hedges.

A protection band of 0% would be very bullish and would indicate full investment with 0% in cash. A protection band of 100% would be very bearish and would indicate a need for aggressive protection with cash and hedges or aggressive short selling.

It is worth reminding that you cannot take advantage of new upcoming opportunities if you are not holding enough cash.  When adjusting hedge levels, consider adjusting partial stop quantities for stock positions (non ETF); consider using wider stops on remaining quantities and also allowing more room for high beta stocks.  High beta stocks are the ones that move more than the market.

Traditional 60/40 Portfolio

Probability based risk reward adjusted for inflation does not favor long duration strategic bond allocation at this time.

Those who want to stick to traditional 60% allocation to stocks and 40% to bonds may consider focusing on only high quality bonds and bonds of seven year duration or less. Those willing to bring sophistication to their investing may consider using bond ETFs as tactical positions and not strategic positions at this time.

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.

This article is from an unpaid external contributor. It does not represent Benzinga's reporting and has not been edited for content or accuracy.

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