Money flows are showing that Amazon and Netflix are killing the popular FAANG trade.
if you had a stock that gave you the foresight of what most are now
seeing in hindsight? Yes, such a tool exists in segmented money flows.
you invest based on the information and analysis that is freely and
widely available and used by everyone else, you get no edge. In a
rip-roaring bull market like we have experienced over the past nine
years, this behavior works out fine, but not great. However, when
markets become volatile or a bear market comes, you need an edge to be
successful. Segmented money flows provide you one of the best edges out
there. See Also
While the momo (momentum) crowd was
aggressively buying popular tech stocks in the beginning of October,
the smart money had turned cautious in September. Remember, the Dow
Jones Industrial Average
fell 22.6% on Oct. 19, 1987, and the
stock market suffered a major drop in October 2008. As for this year,
please see “Fear of October is creeping into money flows in 11 popular tech stocks.”
after a downdraft started, the crowd has maintained a high degree of
complacency. Investors are suffering from recency bias. Please see “Would you be prepared if the Dow Jones Industrial Average were to fall 5,700 points?”
Please click here for an annotated chart of 11 popular tech stocks. Please note the following:
• Momo crowd money flows in Amazon
have dramatically changed. Previously
they have been consistently positive. Now they have become negative.
Smart money flows in Amazon have been consistently neutral to mildly
negative. Now they are mildly negative.
• With Netflix
it’s similar. The smart money is
mildly negative on the stock, and the momo crowd is very negative.
Amazon and Netflix represent examples of uninitiated investors getting
carried away with their convictions in the face of negative smart money
flows. We witnessed it firsthand at The Arora Report. When Netflix was
over $400, new subscribers would take a 30-day free trial to our ZYX Buy
Change Alert to find that Netflix was not in our model portfolio. They
would ask why Netflix was not in our model portfolio. We would explain
that in addition to the potential reward, our system takes into account
risks and there was too much risk in Netflix at that time. Some
investors had such high conviction in Netflix that they would respond by
demanding the Netflix be included in our model portfolio or they would
cancel their subscription. Netflix has fallen from a high of $420 to
about $300 as of this writing.
The same thing happened when Amazon was over $2,000.
• Smart money flows in Intel
have been consistently positive.
Intel reported earnings better than the consensus and the whisper
numbers. Stocks move based on the difference between the actual reports
and the whisper numbers. Momo crowd money flows in Intel have been
• It is easy to see how segmented money flows kept investors on the right side in Intel. The same thing happened in AMD
Prior to the plunge in AMD, momo
crowd money flows in AMD were extremely positive. Smart money flows in
AMD were neutral to negative.
After the plunge in AMD, smart
money flows are neutral but momo crowd money flows are extremely
negative. Smart money flows, in part, helped The Arora Report give a
sell signal to take partial profits on AMD near the high at $33.60. AMD
stock is trading in the $18 range as of this writing.
• Smart money flows in Nvidia
have been negative, but momo crowd
money flows have been positive. Again, smart money flows helped
investors avoid the big drop in Nvidia stock. Now after the drop, momo
crowd money flows have turned negative in Nvidia.
• Momo crowd money flows are extremely negative in Facebook
• Momo crowd money flows are positive in Apple
• Smart money flows are neutral in Google
• As of this writing, the weak
hands have not yet been shaken out, but that can happen soon. Typically
bottoms are formed when weak hands are shaken out. Please see “‘Buy-and-hold’ investors are keeping the faith — and endangering themselves.”
Arora: Nigam Arora answers your questions about investing in stocks,
ETFs, bonds, gold and silver, oil and currencies. Have a question? Send
it to Nigam Arora.
chart also shows relative rankings of some marijuana stocks. Those are
based on the six screens of the ZYX Change Method. Please click here to learn about the six screens.
rankings are more useful for medium-term and long-term positions.
Non-risk-adjusted rankings are more useful for short-term positions or
Money flows in broad-based ETFs such as S&P 500 ETF
Nasdaq 100 ETF
and small-cap ETF
are mildly negative.
What to do now
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, if there is a further dip in the market. You will not be
able to take advantage of the new buying opportunities if you are not
holding enough cash. 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.