By Nigam Arora
• The only stock the momo crowd is selling is Chinese ecommerce giant Alibaba /zigman2/quotes/201948298/composite BABA +0.80% . Interestingly, the smart money — professional investors — is buying Alibaba.
• These stocks collectively carry a heavy weighting in the S&P 500 Index /zigman2/quotes/210599714/realtime SPX -0.17% .
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Extremely positive momo crowd money flows indicate very positive sentiment toward technology stocks. Sentiment is a contrary indicator at extremes. In plain English, this means that when sentiment becomes extremely positive, it is time to sell. This is not a good setup.
To be clear, this is not a call to dump technology stocks. Near the peak of the recent rally, The Arora Report did give a signal for tactical, but not strategic, sales for those who were looking to lighten up on the rally. We continue to hold several of these tech stocks in our Model Portfolio.
Some of these stocks should be bought when they dip into the buy zones and nibble when the signals are given to tactically do so.
Investors should consider primarily making buy sell decisions based on the objective framework of protection bands. Please see “Stock market opinions abound — here’s an objective way to tell when the market bottoms.”
The chart shows money flow data for short-squeezes in the 11 popular tech stocks.
A short-squeeze occurs when short-sellers either panic or are compelled to buy to cover shares that were previously short sold. This leads to a lot of artificial buying that is not based on fundamentals.
A trigger for a short squeeze can be even slightly good news.
The chart also shows the relative rankings of the 11 popular tech stocks. These rankings are based on the six screens of our proprietary model.
Risk-adjusted rankings are more useful for medium- and long-term positions. Non-risk-adjusted rankings are more useful for short-term or trade-around positions.
Answers to your questions
Answers to some of your questions are in my previous writings. You can access them here.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. <INTERNAL-PAGE URL="/author/nigam-arora">Nigam Arora</INTERNAL-PAGE> 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.