Far Right Surges In Europe, Adding To Geopolitical Risk

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

Added Geopolitical Risk

Please click here for an enlarged chart of iShares MSCI France ETF EWQ.

Note the following:

  • The chart shows French stocks made a lower high.
  • The chart shows French stocks are making a topping formation. This is a negative.
  • Investors already face significant geopolitical risks emanating from Ukraine, Taiwan, Korea, and the Middle East. Now there is an additional risk – far right parties may win a record number of seats in the European Parliament.
  • According to the exit polls, far right parties will win 150 of 720 seats.
  • Centrists are still likely to win the largest number of seats, but both the far left and far right are gaining seats.
  • Of note is that the biggest far right gains are coming from three important countries: France, Italy, and Germany.
    • 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.
    • In Germany, Chancellor Olaf Scholz’s Social Democrats won only 14% of the vote.
  • In The Arora Report analysis, it is likely that voters who voted for the far right parties in the European election may end up voting for centrist parties in national elections.  
  • In The Arora Report analysis, investors should also note that the pro-environment Green parties suffered heavy losses in the election.  It appears that voters in Europe are tired of the heavy cost of ambitious climate policies. This has a negative impact on electric vehicle stocks and renewable energy stocks.  
  • The election results from Europe are dampening the sentiment across the globe. On the positive side, three developments are helping the stock market.
    • There was a significant pump over the weekend about AI stocks. Retail investors tend to respond to the weekend pump.
    • Retail investors are excited about NVIDIA Corp NVDA trading post split at about $120.
    • Apple Inc AAPL, will unveil its AI strategy today at WWDC.
  • 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.

Magnificent Seven Money Flows

In the early trade, money flows are positive in AAPL and Microsoft Corp MSFT.

In the early trade, money flows are neutral in Amazon.com, Inc. AMZN, Alphabet Inc Class C GOOG, and Meta Platforms Inc META.

In the early trade, money flows are negative in NVDA and Tesla Inc TSLA.

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

Momo Crowd And Smart Money In Stocks

The momo crowd is buying stocks in the early trade. Smart money is inactive 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 GLD. The most popular ETF for silver is iShares Silver Trust 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 USO.

Bitcoin

Bitcoin BTC/USD is trading below $70,000.

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.

Market News and Data brought to you by Benzinga APIs
Comments
Loading...
Posted In: NewsEurozoneCommoditiesMarketsGeneralcontributorsenergyExpert IdeasGoldMagnificent SevenOil
Benzinga simplifies the market for smarter investing

Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.

Join Now: Free!

Loading...