The stock market has had nearly a straight-up move since Christmas Eve. Technology stocks have been especially strong.
After the big move, here is the key question for technology investors: “Should you buy, add, sell, trim or even short-sell specific tech stocks now?” The best tool to help answer the question is to look at segmented money flows. Let’s explore with the help of a chart.
Chart
Please click here for the chart showing segmented money flows in 11 popular tech stocks. Due to the popularity of these stocks, it makes sense to look at them in addition to Dow Jones Industrial Average DJIA, +0.15% and broad ETFs such as S&P 500 ETF SPY, +0.16% Nasdaq 100 ETF QQQ, +0.57% and small-cap ETF IWM, +0.52% Please note the following:
• As the chart shows, smart money flows — those from professional investors — are very positive in only two popular tech stocks: Alibaba BABA, -1.88% and Facebook FB, -0.38%
• Smart money flows are positive in Intel INTC, +2.06% In contrast, they are neutral in AMD AMD, +8.49% and Nvidia NVDA, +3.07% among semiconductor stocks.
• Smart money flows are mildly positive in Microsoft MSFT, +0.65% and Google GOOG, +0.45% GOOGL, +0.44%
• None of these popular tech stocks are attracting extremely positive smart money flows.
• The smart money is selling only one stock among popular tech stocks. Smart money flows are mildly negative in Netflix NFLX, +0.55% By contrast, momo crowd money flows — those from average investors — are very positive in Netflix.
• Smart money flows are neutral in Apple AAPL, +0.69% Amazon AMZN, +0.37% and Tesla TSLA, +2.07%
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Short squeezes
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.
The chart lists AMD, Nvidia, Netflix and Tesla as extremely positive for a short squeeze. This means that those four stocks can quickly spike if a short squeeze starts. Often the trigger for a short squeeze is slightly good news.
Rankings
The chart also shows relative rankings of the 11 popular tech stocks. The 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- and long-term positions. Non-risk-adjusted rankings are more useful for short-term or trade-around positions.
What to do now
Interest rates have fallen significantly. If they stay low, which is likely, investors will place a premium on growth. In this environment, growth stocks are likely to outperform value stocks. Since technology stocks are growth stocks, they are therefore likely to outperform.
Having said that, many technology stocks are overbought. When stocks are overbought, they are vulnerable. Investors may want to pay attention to the size of their positions in tech stocks. Especially applicable is Arora’s 14th Law of Investing and Trading: “To be successful at investing and trading, become a master of position sizing.”
Consider using the money flows shown on the chart as your guide.
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.