Prudent investors who know the history of the stock market pay special attention to October.
After all, on Oct. 19, 1987, Dow Jones Industrial Average DJIA, -0.26% plunged 22.61%. In October 2008, the S&P 500 SPX, -0.13% lost nearly a fifth of its value. Historically, October tends to be more volatile than other months.
This fear of October is beginning to creep into the market. Let’s examine with the help of a chart.
The chart
Please click here for the annotated chart of 11 popular tech stocks. Please note the following:
• Tech stocks have been the leaders of this market. It just makes sense to see how money is flowing into the leaders.
• Smart-money flows have turned neutral in Facebook FB, -0.30% Apple AAPL, +0.63% Amazon AMZN, +2.08% and Google holding company Alphabet GOOG, +0.96% GOOGL, +1.21%
• Smart-money flows are mildly negative in Netflix NFLX, -0.05% But the momentum (momo) crowd money flows are very positive.
• Advanced Micro Devices AMD, -0.12% and Intel INTC, -2.13% are the only two tech stocks shown on the chart with mild positive smart-money flows. Momo crowd money flows are extremely positive in AMD but negative in Intel. Also note that AMD is No. 1 on non-risk adjusted rank.
• Momo crowd money flows are extremely negative in Alibaba BABA, +0.67% but smart money flows are neutral.
• Momo crowd money flows are positive on Microsoft MSFT, -0.19% and Tesla TSLA, +0.44% but smart money flows are neutral.
• Smart-money flows are negative in Nvidia NVDA, +1.02% but momo crowd money flows are positive.
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The rank
The chart also shows relative ranks of some marijuana stocks. These ranks are based on the six screens of the ZYX Change Method. Please click here to learn about the six screens.
Read: How to survive marijuana stocks’ rollercoaster ride
Risk-adjusted ranks are more useful for medium-term and long-term positions. Non-risk-adjusted ranks are more useful for short-term positions or trade-around positions.
ETFs
Money flows in broad-based ETFs, such as the SPDR S&P 500 SPY, -0.09% Invesco QQQ, +0.14% (which tracks the Nasdaq 100 Index NDX, +0.19% ) and the ishares Russell 2000 ETF IWM, +0.15% are becoming less positive.
What to do now
We are observing that the smart money seems to be increasing its hedges but not selling.
At this time, it is important to hold a fair amount of cash. Our plan is to selectively buy stocks, especially special situations, if there is a dip in the market. You won’t be able to take advantage of the new buying opportunities if you are not holding enough cash.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article. 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.
