Stock Market Generals Shot Before Trump Rescue Plan Of Not Opening Hormuz – Risk and Oil Underpriced

Underpriced Risk Please click here for an enlarged chart of VanEck Semiconductor ETF (NASDAQ:SMH). Note the following: Semiconductors have been generals of this stock market due to the AI trade. The chart shows yesterday the generals were shot with incessant and deep selling. The chart shows that yesterday, semiconductors touched the top band of zone 1 (support). The chart shows semiconductors are bouncing this morning after President Trump came to the rescue of the stock market last night. Stock futures immediately jumped last night after a report that President Trump was considering ending the Iran war without opening the Strait of Hormuz. RSI on the chart shows semiconductors had become oversold but are now bouncing on President Trump's rescue of the stock market. Here is the historical pattern that is of interest to prudent investors: In a decline, generals initially hold up. As the decline continues, generals are shot, just like the chart shows aggressive selling in semiconductors yesterday. After generals are shot, investors who invest only on technicals and typically would have bought a majority of their positions near the highs, see sell signals near the lows and sell. Selling by technically oriented investors often triggers margin calls in momo crowd accounts. Momo crowd accounts that also typically would have bought a majority of their positions near the highs see forced liquidations, putting further downward pressure on the stock market. At this point, bears are convinced that they are finally right and start short selling, putting further downward pressure on the stock market. The stock market rallies strongly, trapping the bears. This time, the stock market is very different from any other time in history as the U.S. President is expertly managing the stock market from day to day during the Iran war. Nonetheless, it is important for investors to understand the traditional sequence of events as explained above. In our analysis, there is merit to President Trump's potential plan of declaring victory in the Iran war without opening the Strait of Hormuz. The reason is that opening the Strait of Hormuz is not as simple as the media in the U.S. has made it sound. By taking this course, President Trump would avoid the most perilous path of the war. In our analysis, here is the downside of ending the war without opening the Strait of Hormuz: This will leave Iran in charge of the Strait of Hormuz. This will elevate oil prices. No other power in the world, with the exception of the U.S., is capable of opening the Strait of Hormuz without Iran's cooperation. Iran will become more potent and perhaps start charging a toll for passage through the Strait of Hormuz. The result will be slower global growth and higher inflation. The U.S. produces significant oil and is not dependent on the Strait of Hormuz for oil, but Europe, India, and China are. In our analysis, President Trump is justified in saying that the countries that benefit the most from an open Strait of Hormuz are those not willing to carry the burden of the Iran war. Then why should the U.S.? In our analysis, herein lies a solid framing for President Trump to declare victory. Should President Trump declare victory, the stock market will bounce. However, oil prices may stay higher, causing inflation and slower growth. These may cap the rise in the stock market. Investors should remember that there are many other high probability scenarios. The only certainty is that oil price and risk are underpriced right now. In general, investors should aggressively invest when the risk is overpriced and not underpriced. 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 Apple Inc (NASDAQ:AAPL), Amazon.com, Inc. (NASDAQ:AMZN), Alphabet Inc Class C (NASDAQ:GOOG), 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 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 (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). 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.