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July 14, 2017, 2:56 p.m. EDT

‘Momentum’ investors buy stocks even though gold and bonds are warning them

Retail sales and inflation reveal a weakening economy and, possibly, corporate profits

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By Nigam Arora

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‘Momo’-controlled stocks don’t care

So far in 2017, stocks have been under significant control of the “momo” (momentum) crowd. The momo crowd does not care about the economy or fundamentals. Momo simply buys because the price is going up.

It is no different now. Momo is totally oblivious to the weak economic data. In contrast, the “smart money” (professional investors) cares about the economic data.

The momo crowd continues to buy stocks aggressively. We will have to see if the smart money steps in to sell. So far, the smart money is inactive after the new data. ETFs of interest are the S&P 500 ETF /zigman2/quotes/209901640/composite SPY +1.87% , Nasdaq 100 ETF /zigman2/quotes/208575548/composite QQQ +1.52% and small-cap ETF /zigman2/quotes/209961116/composite IWM +1.45% .

What you need to know about momo

Investing along with momo is a fine technique but investors must be careful about two things.

• Playing with momo is like playing musical chairs. Sooner or later, the music stops and someone is left standing.

• From the large number of emails I have received from investors and social media, the momo crowd is driven only by price. Often such investors do not even have a good grasp of what a company does, yet they buy large quantities based on price momentum. Investors who are not especially nimble may consider staying away from this approach.

For a more concrete recommendation on what to do now, please see “Stocks could crash if the Fed’s Yellen can’t perform a miracle.”

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. All recommended positions are reviewed daily at The Arora Report.

Nigam Arora is an investor, engineer and nuclear physicist by background, has founded two Inc. 500 fastest-growing companies, is the developer of the adaptive ZYX Global Multi Asset Allocation Model and the ZYX Change Method to profit from change in trading and investing. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.

/zigman2/quotes/209901640/composite
US : U.S.: NYSE Arca
$ 396.91
+7.28 +1.87%
Volume: 50.18M
May 23, 2022 2:33p
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/zigman2/quotes/208575548/composite
US : U.S.: Nasdaq
$ 293.07
+4.39 +1.52%
Volume: 43.91M
May 23, 2022 2:33p
loading...
/zigman2/quotes/209961116/composite
US : U.S.: NYSE Arca
$ 178.64
+2.56 +1.45%
Volume: 16.92M
May 23, 2022 2:33p
loading...

Nigam Arora is an engineer, nuclear physicist, author, and entrepreneur and the founder of two Inc. 500 fastest growing companies. He is also the developer of the ZYX Change Method to profit from change by investing. The premise is that most money is made by predicting change before the crowd. Arora is the chief investment officer at The Arora Report and the editor of four newsletters that track the ZYX Change Method. Nigam can be reached at Nigam@TheAroraReport.com

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