Earnings season has started. Wall Street is bullish on the first phase of President Trump’s trade deal with China. The stock market is near highs after rising for a decade. At a time like this, it’s important to pay attention to the other side of the story.
Here’s the key question for technology investors: “Should you buy, add, sell, trim or even short-sell specific technology stocks now?”
The best tool to answer the question is to look at segmented money flows. Let’s explore with the help of a chart.
Please click here for a chart showing segmented money flows in 11 popular tech stocks.
Note the following:
• Momentum crowd money flows are extremely positive in Apple’s AAPL, -0.01% shares. This is a big turn. Momentum crowd money flows have not been consistently extremely positive in Apple for a long time. (The momentum crowd consists of individual investors chasing growth stocks.)
• Of special interest is Netflix. The momentum crowd was buying Netflix near its highs. When Netflix initially fell, that crowd kept on buying it, perhaps on hopes of a rebound. Such hopes were justified to some extent because in the past Netflix had typically rebounded. When Netflix kept falling and a rebound did not occur, the momentum crowd started selling Netflix near its low. Now the momentum crowd is again buying Netflix.
• Smart money flows are mildly positive in Intel and Facebook FB, +3.23%. (The smart money represents professional investors.)
• Alibaba BABA, +2.12% has been a battleground stock. Momentum crowd money flows are positive but smart money flows are neutral.
• Microsoft MSFT, +1.33% is now considered a “safe” stock in many portfolios. A review of analysts’ reports shows the prevailing wisdom about Microsoft stock is “heads you win, tails you win.” Momentum crowd money flows are very positive in Microsoft. Prudent investors ought to note that smart money flows are neutral.
• The momentum crowd has not lost faith in Tesla’s TSLA, +0.83% stock. Momentum crowd money flows are mildly positive in Tesla.
The chart shows the potential for short squeezes in 11 popular tech stocks.
A short squeeze occurs when short sellers either panic or are compelled to buy to cover shares that were previously short sold. This leads to a lot of artificial buying that is not based on fundamentals.
Often the trigger for a short squeeze is good news.
The chart also shows the relative rankings of the 11 popular tech stocks. These are based on the six screens of the ZYX Change Method. Please click here to learn about the six screens.
Risk-adjusted rankings are more useful for medium- and long-term positions. Non-risk-adjusted rankings are more useful for short-term or trade-around positions.
How money flows can be used
Prudent investors who are serious about gaining an edge in the market from any of the following perspectives may consider using segmented money flows shown on the chart:
• Risk assessment
• Risk reduction
• Initiating short-term positions
• Exiting short-term positions
• Using smart money flows for the assessment of long-term positions.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.