Pay Attention: Sentiment Turns Extremely Bullish And That Is Not Positive, $5 Trillion Of Quad Witch

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

Extremely Positive

Please click here for a chart of SPDR S&P 500 ETF Trust SPY which represents the benchmark stock market index S&P 500 (SPX).

Note the following:

• The chart shows that the stock market has reached the low band of the top resistance zone.
• RSI on the chart shows that as overbought as the stock market is, there is room for the stock market to run higher.
• The stock market always has a lot of crosscurrents. A new negative crosscurrent has developed. Sentiment has very quickly become extremely positive. As we have been sharing with you, at extremely positive, sentiment is a contrary indicator. In plain English, sentiment at extremely positive is a sell signal. Here are the key points:
  • No one should act based only on sentiment.
  • Sentiment is an important indicator but only one of the many indicators that go into a comprehensive 360 degree analysis.
  • Sentiment is not a precise timing indicator.
  • If the stock market pulls back, sentiment may also pull back, and thus negate any negative implications.
  •  Market mechanics continue to be on the positive side.
• Today is quadruple witching.  In quadruple witching, stock index futures, futures options, stock options, and single stock futures expire.
• Quadruple witching can cause volatility.
• Over $5T notional value worth of options are expiring today.
• Related to options, depending upon how quadruple witching ends, there is a high probability of a market maker gamma squeeze. If a gamma squeeze starts, this market mechanic can take the market higher than you would think. To learn more about a market maker gamma squeeze, listen to the podcast titled “Market Mechanics: Impact Of Dealers’ Gamma Position Change On The Stock Market.” The podcast is available in Arora Ambassador Club.
• New York Fed President John Williams is trying to tactfully walk back Powell’s dovishness. So far, the stock market does not like what Williams has to say. Williams is also deemphasizing the dot plot.  Williams says the rate cut question is not the main question before the Fed.
• The market is making many historic records.
  • In a historic record, 44% of stocks in S&P 500 are overbought.
  • In a historic record, small caps went from a new low to a new high in 48 calendar days.
• Due to the unprecedented nature of what is happening, be extra alert. The protection band may need to be changed quickly.  
• 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.

Magnificent Seven Money Flows

In the early trade, money flows are like a yoyo in Apple Inc AAPL, Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, Meta Platforms Inc META, Microsoft Corp MSFT, NVIDIA Corp NVDA, and Tesla Inc TSLA.

In the early trade, money flows are mixed in SPDR S&P 500 ETF Trust and Invesco QQQ Trust Series 1 QQQ.

Momo Crowd And Smart Money In Stocks

The momo crowd is aggressively buying stocks in the early trade. Smart money is 🔒 in the early trade. To see the locked content, please click here to start a free trial.

Gold

The momo crowd is like a yoyo gold in the early trade. Smart money is 🔒 in the early trade.

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

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

Oil

The momo crowd is like a yoyo in oil in the early trade.  Smart money is 🔒 in the early trade.

For longer-term, please see oil ratings.

The most popular ETF for oil is United States Oil ETF USO.

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.

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.

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 2008 financial crash, the start of a mega bull market in 2009, the COVID crash, the post-COVID bull market, and the 2022 bear market. Please click here to sign up for a free forever Generate Wealth Newsletter.

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