In September, the momo (momentum) crowd was euphoric about popular tech stocks.
In December, they were panicking about those same stocks and taking losses by aggressively selling. Now the momo crowd is aggressively buying tech stocks again.
What if you were taking partial profits or selling in September? What if you were buying in December? What if you do not like to lose? Then you would be siding with the smart money for the longer term but trading with the momo crowd if you are very, very short term.
Segmented money flows give you an edge when overlaid on sentiment and other factors. Let’s examine with the help of a chart.
Chart
Please click here for a chart showing segmented money flows in 11 popular tech stocks. Due to the popularity of these stocks, it makes sense to look at them in addition to the Dow Jones Industrial Average DJIA, -0.87% and broad-based ETFs such as S&P 500 ETF SPY, -0.95% Nasdaq 100 ETF QQQ, -1.34% and small-cap ETF IWM, -0.82% Please note the following:
• Smart money flows are positive in only one of the 11 popular tech stocks. That stock is Intel INTC, -1.34% In contrast, momo crowd money flows are negative in Intel.
• Smart money flows are mildly positive in Facebook FB, -2.41% Google GOOG, -1.48% GOOGL, -1.51% and Microsoft MSFT, -0.72%
• The momo crowd money flows are very positive in Apple AAPL, -1.89% and Netflix NFLX, -2.12% In contrast, smart money flows are neutral.
• Momo crowd money flows are positive in Amazon AMZN, -1.58% AMD AMD, -2.54% Alibaba BABA, -2.66% Nvidia NVDA, -3.65% and Tesla TSLA, -3.06% In contrast, smart money flows are neutral.
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Short squeeze
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.
Late last year, popular tech stocks were aggressively sold short. A mini-short squeeze has occurred over the past few weeks. More important than what has happened is what may happen in the future. This is where the data shown on the chart comes in. Under the short squeeze column is shown the positioning for further short squeezes if the market continues to rise. For example, AMD short-squeeze flows are extremely positive, but they are neutral in Intel. This means that on even slightly good news, AMD can experience a significant spike. In contrast, there is no such potential artificial buying ahead in Intel.
Rankings
The chart also shows relative ranks of the 11 popular tech stocks. These ranks 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 positions or trade-around positions.
What to do now
Based on the data shown, with the exception of nimble, very short-term traders, investors may want to slow the purchase of popular tech stocks and wait for a pullback. As an example, please see the “what to do now” section in “Alphabet, unlike Amazon, doesn’t get a pass on spending — does that make it a better investment?”
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.
