By Nigam Arora
Money flows are a way to understand real-time demand for equities
Stock market investors should be concerned as President Trump contemplates punishing China for the spread of the coronavirus.
In these times, interpreting information is difficult.
That's why a great tool is segmented money flows, which are like an X-ray.
First and foremost, I am politically agnostic. My sole job is to help investors. Irrespective of your like or dislike for Trump, you have to give him credit for openly saying what many are only thinking.
Could China have stopped the coronavirus? Was China honest about the coronavirus?
Since technology stocks have been the market leaders during the rally, it makes sense for investors to direct an X-ray at them.
Let's explore with the help of two charts.
Please click here () for an annotated chart of the Dow Jones Industrial Average ETF (DIA), which tracks the Dow Jones Industrial Average .
Please click here () for a chart showing segmented money flows in 11 popular tech stocks.
Note the following:
-- The daily gyrations of the stock market create confusion. However, the advantage of the first chart is that it provides clarity. So far, as the first chart shows, it is very simple: The stock market hit the upper band of the "mother of support zones" and has now rallied to the bottom band of the resistance zone.
-- Overnight, the Chinese yuan fell 0.7% against the dollar in offshore trading. For a currency, this is a big move.
-- If the yuan continues to fall against the dollar, it will give China a big advantage in exports to the United States. This will increase the trade deficit with China at a time when the U.S. economy is already suffering from the coronavirus. This newly developing situation with China can have a major impact on the stock market, even though most investors and the mainstream media have not yet put two and two together. For stock market investors, there is an advantage to looking ahead. For example, on Jan. 22, The Arora Report warned of a potential () ( in the stock market ( ) due to coronavirus.
-- There has been talk of the U.S. canceling the massive debt it owes China. However, this is unlikely because the U.S. wants to maintain the sacrosanct full faith and credit of U.S. debt obligations.
-- Trump says he has alternate ways to punish China, such as imposing tariffs.
-- The stock market does not like the idea of tariffs.
-- The relations between the two largest economies of the world are deteriorating at a time when the stock market is at the lower band of the resistance zone, as shown on the chart. This is a new negative.
-- The second chart shows that momo (momentum) crowd money flows are extremely positive in Facebook (FB), Apple (AAPL), Amazon (AMZN), Alphabet (GOOGL) (GOOGL), Microsoft (MSFT) and Netflix (NFLX) stocks. Those have been the leaders of the rally.
-- In contrast to the momo crowd, smart money flows are mildly negative in Apple and neutral in Amazon, as shown on the second chart.
-- AMD (AMD) and Alibaba (9988.HK) are interesting. Smart money flows are mildly negative in AMD but momo crowd money flows are extremely positive. In contrast, smart money flows are mildly positive in Alibaba but momo crowd money flows are negative.
-- Intel (INTC) is the only stock that both smart money and the momo crowd like, as shown on the chart.
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The chart also shows the relative rankings of the 11 popular tech stocks.
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.
Amazon stock is ranked number one both on a risk-adjusted and non-risk-adjusted basis. As of this writing, after earnings, Amazon stock is falling for the six reasons that I shared with you before: "Investors have $5.1 trillion hiding out in the shares of five companies, which will be tested this week ()."
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. Nigam Arora ( ) 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
May 01, 2020 11:50 ET (15:50 GMT)
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