FAANG stocks have been the generals of the bull market, leading the way. And when generals call for a change in direction, investors need to pay attention.
A big change is happening to FAANG stocks that every investor needs to know. The change is also spilling over into other sectors.
FAANG stocks are Facebook FB, -6.77% Amazon AMZN, -1.70% Apple AAPL, -1.53% Netflix NFLX, -1.56% and Google GOOG, -3.16% GOOGL, -3.03%
Let us explore this issue with the help of a chart.
Read: Why the case for betting against Facebook is ‘building fast’
Chart
Please click here for the updated chart. The chart shows segmented money flows for FAANG stocks. The chart also shows money flows for popular tech stocks AMD AMD, -0.35% Alibaba BABA, -2.87% Microsoft MSFT, -1.81% Nvidia NVDA, -3.78% and Tesla TSLA, -2.42%
Please click here to see the money flows that were previously published. Please note the following by comparing the two charts.
• The momo (momentum) money flows in FAANG stocks have turned negative from extremely positive.
• Smart money flows for the most part have not changed. The smart money is professional investors.
• Smart money flows are stuck in neutral in FAANG stocks.
To learn more about the money flows and rankings shown on the chart, please see, “Here’s the No. 1 tech stock, according to money flows.”
Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.
The big change
During most of the bull market, momo money flows have been positive to extremely positive in FAANG stocks. Now for the first time, there are early signs of the momo crowd turning on FAANG stocks.
To be clear, this is not an all out “sell” signal on FAANG stocks for two reasons.
• The smart money is still not selling into the weakness. As The Arora Report has been sharing with its subscribers, the smart money has been lightly selling into the strength.
• The momo crowd is fickle.
Three fundamental changes
Here are the three fundamental changes behind the turn.
• Facebook is under fire because its data has been misused. Is Facebook data a weapon that Facebook cannot completely control?
• The European Union may impose a 3% tax on gross revenues on big tech companies. If this happens, it will hurt earnings.
• There is a report that Apple is working on its own display technology. This will hurt many Apple suppliers. The ones that are seeing an immediate effect in their stock prices are Universal Display OLED, -12.10% LG Display LPL, -1.91% and Synaptics SYNA, -2.03%
Five stages you need to know
To profit from change, investors need to know the five stages of change. Please click here to see the chart showing the five stages for a “buy” position. Please click here to see the five stages of a “short” position. A short position is a bet on a decline in a stock.
What to do now
The Arora Report subscribers have been provided with detailed guidance. What you do now depends on the following factors.
• Are you overly concentrated in FAANG stocks?
• Are you overly concentrated in tech stocks?
• Have you been taking partial profits along the way?
• When did you buy those stocks?
• Based on the size of your unrealized gains, what are the tax consequences?
Finally, watch the flows to see if a buying opportunity develops or more partial profits need to be taken.
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, and 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.