If conventional wisdom is to be believed, the smart money is going loco by buying Facebook and Intel and not Amazon.
Is it true? Let’s explore with the help of a chart.
Read: Facebook earnings
Chart
Please click here for the chart of segmented money flows in 11 popular tech stocks. Please note the following:
• Smart money flows — those of professional investors — were positive going into Facebook FB, +4.32% earnings, which the company reported after the close of trading Tuesday. This was in the face of a lot of headwinds, pessimism from analysts and extremely negative sentiment. Based on the headwinds, the momo (momentum) crowd appeared to be right as momo crowd money flows were extremely negative going into the earnings.
• After the earnings release, during the conference call, Facebook’s stock first dipped before bouncing. During the dip, smart money flows were extremely positive while momo crowd money flows were extremely negative.
• The chart shows overall smart money flows in Facebook are mildly positive and momo crowd money flows are extremely negative.
• The behavior of the smart money and the mono crowd is similar in Intel INTC, -0.84% Of interest is the news that Samsung SSNLF, -3.07% is cutting capital expenditures and declaring the semiconductor boom over. Both Intel and Samsung are large semiconductor vendors.
• The chart shows smart money flows in Amazon AMZN, +4.75% are neutral, even though analysts are not cutting their targets like they are on Facebook.
• Smart money flows are neutral on Tesla TSLA, +2.34% Microsoft MSFT, +3.62% and Alibaba BABA, +2.77%
• Momo crowd money flows are extremely negative in AMD AMD, +5.00%
• The chart shows the momo crowd is acting like a yo-yo in Netflix NFLX, +6.28% Nvidia NVDA, +3.06% and Amazon.
• Smart money flows are mildly positive in Google GOOG, +4.52% GOOGL, +4.60%
• Smart money flows are neutral in Apple AAPL, +2.96%
• In contrast, momo crowd money flows are positive in Apple. Please see “Why Nov. 1 is the make-or-break day for the stock market.”
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Going on Facebook and Intel
Why is the smart money buying Intel and Facebook and not Amazon? Well, what is the common link? The answer lies in valuations. Both Facebook and Intel have relatively low valuations while Amazon has a very high valuation.
For Facebook, the smart money may also be looking at the huge runway ahead for monetization of Instagram and WhatsApp. The big strike against Facebook has been its increasing expenditures. After listening to the conference call and analyzing the earnings report, it appears that expenditures may level off soon and that will be a positive.
Six reasons for a rally
Tech stocks are likely to be big beneficiaries of a market rally. To see six reasons for a rally, please see “Here are the six things that could ignite a rally in the stock market.”
Rankings
The chart also shows relative rankings of the 11 popular tech stocks. Those 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-term and long-term positions. Non-risk-adjusted rankings are more useful for short-term positions or trade-around positions.
ETFs
Money flows in broad-based ETFs such as S&P 500 ETF SPY, +1.59% Nasdaq 100 ETF QQQ, +2.65% and small-cap ETF IWM, +0.61% are mildly positive.
What to do now
The Arora Report provides its subscribers the precise level of hedges and cash to hold. At this time, it is important to hold a fair amount of cash. Our plan is to selectively buy stocks, especially special situations. You will not be able to take advantage of new buying opportunities if you are not holding enough cash. Positive seasonals are ahead and many investors are expecting a year-end rally. However, the weak hands did not get washed out during the dip, and this makes any rally somewhat suspect. Please see “How one investor sidestepped this week’s stock-market decline.”
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.
