NEGATIVE SENTIMENT FROM FRANCE IMPACTING U.S. STOCKS – WILL AI COME TO THE RESCUE?

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By Nigam Arora & Dr. Natasha Arora

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

AI To The Rescue?

Please click here for a chart of France ETF (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.
  • As an actionable item, the sum total of the foregoing is in the protection band, which strikes the optimum balance between various crosscurrents.   Please scroll down to see the protection band. The protection band is one of the large number of unique edges that are available to members of The Arora Report.
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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 (TSLA) and Nvidia (NVDA).

In the early trade, money flows are negative in Amazon (AMZN), Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Apple (AAPL).

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

The momo crowd is *** (To see the locked content, please take a 30 day free trial) stocks in the early trade.  Smart money is *** stocks in the early trade.

Note for new members: 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 *** gold in the early trade.  Smart money is *** in the early trade.

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

Oil

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

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For longer-term, please see oil ratings.

Bitcoin

Bitcoin (BTC.USD) is range bound.

Markets

Our very, very short-term early stock market indicator is ***.  This indicator, with a great track record, is popular among long term investors to stay in tune with the market and among short term traders to independently undertake quick trades.

Interest rates are ticking down, and bonds are ticking up.

The dollar is stronger.

Trading futures is not recommended for most investors. The purpose of providing this information is to give an indication of the premarket activity that usually guides the activity when the market opens.

Gold futures are at $2347, silver futures are at $29.27, and oil futures are at $79.04.

S&P 500 futures are trading at 5414 as of this writing.  S&P 500 futures resistance levels are 5500 and 5622: support levels are  5400, 5256, and 5210.

DJIA futures are down 272 points.

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 holding *** in cash or Treasury bills or allocated to short-term tactical trades; and short to medium-term hedges of ***, and short term hedges of ***. 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.

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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.

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Picture of Nigam Arora

Nigam Arora

Nigam Arora is known for his accurate stock market calls. Nigam is a distinguished master of the macro. He is a popular columnist with over 100 million page views, an engineer, and nuclear physicist by background. Nigam has founded two Inc. 500 fastest growing companies and has been involved in over 50 entrepreneurial ventures. He is the developer of Theory ZYX of Successful Change Management and is the author of the book on Theory ZYX, as well as the developer of the ZYX Change Method for Investing.

Picture of Dr. Natasha Arora

Dr. Natasha Arora

Dr. Natasha Arora has significant expertise in investment analysis especially biotech, healthcare, and technology. Natasha is a graduate of Harvard Medical School followed by a postdoc at MIT. She has published several peer reviewed research papers in top science journals.

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