Nov. 16, 2019, 11:39 a.m. EST

Everyone is bullish on stocks all of a sudden — here’s why you shouldn’t be

Some money managers may be experiencing a fear of missing out, which could juice stocks in the short term

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By Nigam Arora


CMT / Courtesy Everett Collection
Know when to fold them.

Two potential scenarios are developing in the U.S. stock market. Both should be considered red alerts by prudent investors.

Let’s explore with the help of a chart. Please click here for an annotated chart of S&P 500 ETF /zigman2/quotes/209901640/composite SPY +0.55% , which tracks the benchmark S&P 500 Index /zigman2/quotes/210599714/realtime SPX +0.45% .

Note the following:

• The chart shows that the stock market has undergone a strong rally.

• The chart shows that the price action in the stock market after the breakout is subdued. This is a negative for the stock market.

• The chart shows that the top trendline is indicting a potential resistance zone. This is a negative.

• The relative strength index (RSI) shows that the market is overbought. This is a negative.

• The chart shows that the volume is low. This is a negative.

• The chart shows that if there is a breakout above the top trendline, the stock market may experience a significant acceleration to the upside. This is a positive.

• Stocks of popular large-cap stocks such as Amazon /zigman2/quotes/210331248/composite AMZN +0.40% , Apple /zigman2/quotes/202934861/composite AAPL +0.0000% and Facebook /zigman2/quotes/205064656/composite FB -1.74% are seeing strong momo (momentum) crowd money flows. This is a positive in the very short term.

• Going into the launch of its new streaming service, Disney /zigman2/quotes/203410047/composite DIS -0.73% stock is seeing very strong momo crowd and smart money flows. This is a positive indicator in the very short term.

• Semiconductor stocks are often early indicators. Momo crowd money flows in popular semiconductor stocks such as Intel /zigman2/quotes/203649727/composite INTC +0.54% , AMD /zigman2/quotes/208144392/composite AMD -0.46% , Applied Materials /zigman2/quotes/209393259/composite AMAT +2.21% and Nvidia /zigman2/quotes/200467500/composite NVDA +0.86% are very positive. This is a positive indicator in the very short term.

Read: ‘Fear of missing out’ triggers huge fund manager shift from cash to stocks, Bank of America Merrill Lynch says

Ask 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.

/zigman2/quotes/209901640/composite
US : U.S.: NYSE Arca
$ 312.23
+1.71 +0.55%
Volume: 69.34M
July 2, 2020 4:00p
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/zigman2/quotes/210599714/realtime
US : S&P US
3,130.01
+14.15 +0.45%
Volume: 2.33B
July 2, 2020 5:19p
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/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 2,890.30
+11.60 +0.40%
Volume: 6.59M
July 2, 2020 4:00p
P/E Ratio
138.07
Dividend Yield
N/A
Market Cap
$1441.61 billion
Rev. per Employee
$359,671
loading...
/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 364.11
+0.0000 +0.0000%
Volume: 28.51M
July 2, 2020 4:00p
P/E Ratio
28.54
Dividend Yield
0.90%
Market Cap
$1578.17 billion
Rev. per Employee
$1.98M
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/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 233.42
-4.13 -1.74%
Volume: 30.63M
July 2, 2020 4:00p
P/E Ratio
31.98
Dividend Yield
N/A
Market Cap
$665.56 billion
Rev. per Employee
$1.57M
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/zigman2/quotes/203410047/composite
US : U.S.: NYSE
$ 112.18
-0.83 -0.73%
Volume: 10.31M
July 2, 2020 4:02p
P/E Ratio
37.85
Dividend Yield
0.00%
Market Cap
$202.63 billion
Rev. per Employee
$295,532
loading...
/zigman2/quotes/203649727/composite
US : U.S.: Nasdaq
$ 59.13
+0.32 +0.54%
Volume: 15.58M
July 2, 2020 4:00p
P/E Ratio
11.45
Dividend Yield
2.23%
Market Cap
$250.36 billion
Rev. per Employee
$659,665
loading...
/zigman2/quotes/208144392/composite
US : U.S.: Nasdaq
$ 52.34
-0.24 -0.46%
Volume: 29.08M
July 2, 2020 4:00p
P/E Ratio
126.30
Dividend Yield
N/A
Market Cap
$61.30 billion
Rev. per Employee
$641,089
loading...
/zigman2/quotes/209393259/composite
US : U.S.: Nasdaq
$ 61.00
+1.32 +2.21%
Volume: 5.60M
July 2, 2020 4:00p
P/E Ratio
19.43
Dividend Yield
1.44%
Market Cap
$55.91 billion
Rev. per Employee
$800,095
loading...
/zigman2/quotes/200467500/composite
US : U.S.: Nasdaq
$ 384.49
+3.29 +0.86%
Volume: 9.10M
July 2, 2020 4:00p
P/E Ratio
71.80
Dividend Yield
0.17%
Market Cap
$236.46 billion
Rev. per Employee
$882,428
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