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Investor Alert

April 9, 2020, 1:05 p.m. EDT

Investors are placing bold bets on tech stocks — this is a very bad idea

When sentiment becomes extremely positive, it is time to sell

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By Nigam Arora


AFP/Getty Images

While most Americans are concerned about the coronavirus, a group of investors is placing bold bets on the leading sector in the stock market, technology stocks.

For the prudent investor, this is not a good setup. Let’s explore with the help of two charts.

Please click here for an annotated chart of the Dow Jones Industrial Average ETF /zigman2/quotes/208954582/composite DIA -0.06% , which tracks the Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.04% . For the sake of transparency, this chart was previously published and no changes have been made.

Please click here for a chart showing segmented money flows in 11 popular tech stocks.

Note the following:

• The first chart shows monthly changes. It is easy to discern from the first chart that even after the recent drop in the stock market, the market is still very high from a long-term perspective. All decisions should be made in the context of this chart.

• Even though it is important to be optimistic that the economy will open soon and the coronavirus will be defeated, it is equally important to analyze investments based on potential realistic scenarios that may not be so rosy. Please read “Greed overtakes fear in the stock market, but don’t be lured into this short-lived rally.”

• The second chart shows a rare occurrence in that momentum investor money flows are extremely positive in nine of 11 popular tech stocks.

• Segmented money flows are like an X-ray of stocks — they see under the surface.

• The momentum crowd’s money flows are extremely positive in Facebook stock /zigman2/quotes/205064656/composite FB +1.52% and Alphabet stock /zigman2/quotes/205453964/composite GOOG +0.54%   /zigman2/quotes/202490156/composite GOOGL +0.46% even though they are losing considerable advertising business.

• The momo crowd is extremely aggressively buying AMD /zigman2/quotes/208144392/composite AMD +0.95% , Nvidia /zigman2/quotes/200467500/composite NVDA +2.86% and Microsoft /zigman2/quotes/207732364/composite MSFT +0.04% because demand for laptops and gaming is rising.

• The momo crowd does not prefer Intel /zigman2/quotes/203649727/composite INTC +0.44% .

• People are staying home — watching more Netflix /zigman2/quotes/202353025/composite NFLX -1.59% and ordering more groceries from Amazon /zigman2/quotes/210331248/composite AMZN -0.40% — good reasons to buy. But extremely positive momo crowd money flows are noteworthy.

• Apple /zigman2/quotes/202934861/composite AAPL +0.64% stores are closed in most of the world but they are now open in China — again, momo money flows are extremely positive.

• The momo crowd’s faith in Tesla /zigman2/quotes/203558040/composite TSLA -1.30% has not been shaken — momo money flows are extremely positive.

/zigman2/quotes/208954582/composite
US : U.S.: NYSE Arca
$ 244.88
-0.14 -0.06%
Volume: 2.52M
May 22, 2020 4:00p
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/zigman2/quotes/210598065/realtime
US : Dow Jones Global
24,465.16
-8.96 -0.04%
Volume: 255.66M
May 22, 2020 5:09p
loading...
/zigman2/quotes/205064656/composite
US : U.S.: Nasdaq
$ 234.91
+3.52 +1.52%
Volume: 33.93M
May 22, 2020 4:00p
P/E Ratio
32.19
Dividend Yield
N/A
Market Cap
$669.39 billion
Rev. per Employee
$1.57M
loading...
/zigman2/quotes/205453964/composite
US : U.S.: Nasdaq
$ 1,410.42
+7.62 +0.54%
Volume: 1.31M
May 22, 2020 4:00p
P/E Ratio
28.46
Dividend Yield
N/A
Market Cap
$769.02 billion
Rev. per Employee
$1.39M
loading...
/zigman2/quotes/202490156/composite
US : U.S.: Nasdaq
$ 1,413.24
+6.49 +0.46%
Volume: 1.43M
May 22, 2020 4:00p
P/E Ratio
28.52
Dividend Yield
N/A
Market Cap
$769.02 billion
Rev. per Employee
$1.39M
loading...
/zigman2/quotes/208144392/composite
US : U.S.: Nasdaq
$ 55.17
+0.52 +0.95%
Volume: 43.52M
May 22, 2020 4:00p
P/E Ratio
133.13
Dividend Yield
N/A
Market Cap
$64.61 billion
Rev. per Employee
$641,089
loading...
/zigman2/quotes/200467500/composite
US : U.S.: Nasdaq
$ 361.05
+10.04 +2.86%
Volume: 25.97M
May 22, 2020 4:00p
P/E Ratio
67.42
Dividend Yield
0.18%
Market Cap
$222.09 billion
Rev. per Employee
$882,428
loading...
/zigman2/quotes/207732364/composite
US : U.S.: Nasdaq
$ 183.51
+0.08 +0.04%
Volume: 20.83M
May 22, 2020 4:00p
P/E Ratio
30.56
Dividend Yield
1.11%
Market Cap
$1391.64 billion
Rev. per Employee
$902,473
loading...
/zigman2/quotes/203649727/composite
US : U.S.: Nasdaq
$ 62.26
+0.28 +0.44%
Volume: 14.10M
May 22, 2020 4:00p
P/E Ratio
12.06
Dividend Yield
2.12%
Market Cap
$263.59 billion
Rev. per Employee
$659,665
loading...
/zigman2/quotes/202353025/composite
US : U.S.: Nasdaq
$ 429.32
-6.93 -1.59%
Volume: 5.42M
May 22, 2020 4:00p
P/E Ratio
86.89
Dividend Yield
N/A
Market Cap
$188.82 billion
Rev. per Employee
$2.22M
loading...
/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 2,436.88
-9.86 -0.40%
Volume: 2.87M
May 22, 2020 4:00p
P/E Ratio
116.41
Dividend Yield
N/A
Market Cap
$1215.46 billion
Rev. per Employee
$359,671
loading...
/zigman2/quotes/202934861/composite
US : U.S.: Nasdaq
$ 318.89
+2.04 +0.64%
Volume: 20.45M
May 22, 2020 4:00p
P/E Ratio
25.00
Dividend Yield
1.03%
Market Cap
$1382.18 billion
Rev. per Employee
$1.98M
loading...
/zigman2/quotes/203558040/composite
US : U.S.: Nasdaq
$ 816.88
-10.72 -1.30%
Volume: 9.99M
May 22, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$151.43 billion
Rev. per Employee
$439,627
loading...
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