By Nigam Arora
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.