By Nigam Arora
If you want an edge in investing, you need to look at money flows from the smart money and the momo crowd
Investors who want an edge in the stock market know from experience that segmented money flows are one of the tools that work. During the rip-roaring bull market, many investors did not care about an edge. They simply believed in "buy, buy and buy." Some of those investors are now realizing that they want tools to give them better foresight.
Is foresight better than hindsight? Let us explore segmented money flows with the help of a chart.
Read:The stock market is overreacting because fears about the economy are overblown ()
Please click here () for a chart showing segmented money flows in 11 popular tech stocks. Since tech stocks have been the leaders of this market, it makes sense to look at tech stocks in addition to the Dow Jones Industrial Average , and popular, broad ETFs such as S&P 500 ETF (SPY), Nasdaq 100 (QQQ) and small-cap ETF (IWM). Please note the following:
-- Nvidia (NVDA) has been the poster child of this bull market. When Nvidia was trading at $292, smart money flows in Nvidia were negative but momo (momentum) crowd money flows were positive and at times extremely positive. Since then, smart money flows consistently stayed negative on Nvidia while momo crowd money flows stayed positive until the stock gapped down. Nvidia has recently traded as low as $133.31.
Interestingly, after staying negative for a long time, smart money flows have turned neutral in Nvidia while momo crowd money flows are extremely negative.
During the decline and at the top in Nvidia, The Arora Report rating has been a "sell." However, now the ZYX Change Method is coming close to giving a "buy" signal if there is a major down spike in Nvidia below the recent low. We will provide a specific buy zone along with a stop zone and a target zone, and the appropriate position size when the signal is given.
-- When Apple (AAPL) was reaching its high at $233.47, smart money flows were neutral but momo crowd money flows were positive and at times extremely positive. After about a $68 drop in Apple's stock, momo crowd money flows in Apple are negative.
The Arora Report's "buy now" rating during Apple's drop and at the top has been a "no."
-- Smart money flows are positive in Intel (INTC) but neutral in AMD (AMD). Momo crowd money flows are negative in both.
-- Smart money flows are mildly positive in Facebook (FB) and Google (GOOGL) (GOOGL).
-- Smart money flows are neutral in Alibaba (BABA), but momo crowd money flows are extremely negative.
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The chart also shows relative rankings of the 11 popular tech stocks. Those rankings are based on the six screens of the ZYX Change Method. Please click here (/) to learn about the six screens.
Risk-adjusted rankings are more useful for medium-term and long-term positions. Non-risk-adjusted rankings are more useful for short-term positions and trade-around positions.
What to do now
Investors need to accept that the character of the market is changing. What has worked over the past nine years may not work in the future. Investors ought to shift their mindset from the "buy, buy and buy" mode. Consider following a comprehensive adaptive model that has a proven track record in both bull and bear markets. It is important to not rely on static models because market conditions have changed.
Disclosure: Subscribers to The Arora Report (/) may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora 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 (mailto:Nigam@TheAroraReport.com).
-Nigam Arora; 415-439-6400; AskNewswires@dowjones.com
(END) Dow Jones Newswires
December 11, 2018 09:47 ET (14:47 GMT)
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