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The Federal Reserve, President Trump and Congress have come up with $6 trillion in stimulus and relief programs to help the economy.
Stock market investors are cheering and not many are talking about the long-term risks from all the new borrowing.
Prudent investors ought to take a look at segmented money flows before making any buying or selling decisions.
Segmented money flows are like an X-ray of stocks — they see under the surface.
Let’s explore with the help of two charts.
Two charts
Please click here for an annotated chart of the SPDR Dow Jones Industrial Average ETF DIA, +4.95%, which tracks the Dow Jones Industrial Average DJIA, +4.75%. For the sake of transparency, this chart was previously published and no changes have been made.
Please click here for a chart showing segmented money flows in 11 popular technology stocks. Money flows are based on algorithms created at the Arora Report.
Note the following:
• The first is a monthly chart giving investors a long-term perspective.
• Consider looking at the second chart in the context of the long-term perspective given by the first chart.
• The first chart shows the support-resistance zone and “mother of support zones.” For more details, please click here.
• The second chart shows that smart money flows are mildly positive for shares of Amazon AMZN, -1.60%, Intel INTC, -0.31% and Microsoft MSFT, +1.01%. The smart money is professional investors such as fund managers and institutions.
• The second chart shows that Alibaba BABA, +4.52% is the most interesting among this group of 11 technology stocks because smart money flows are mildly positive but momentum crowd money flows are negative. The momentum crowd is regular investors chasing stocks that have posted big returns.
• The second chart shows momentum crowd money flows are extremely positive for shares of Apple AAPL, +2.91%, Advanced Micro Devices AMD, +1.58%, Netflix NFLX, -1.11% and Tesla TSLA, +8.43%.
• The second chart shows smart money flows are neutral for shares of Facebook FB, -1.45%, Alphabet GOOG, -2.05% GOOGL, -2.00% and Nividia NVDA, +2.55%.
• Short-squeeze flows are extremely positive for Netflix, AMD and Nvidia.
• The second chart also shows “risk-adjusted rankings” and “non-risk adjusted rankings” of the 11 popular stocks in this volatile stock market.
Short-squeezes
The chart shows money flow data for short-squeezes in 11 popular tech stocks.
A short-squeeze occurs when short-sellers either panic or are compelled to buy to cover shares that were previously sold short. This leads to a lot of artificial buying that is not based on fundamentals.
A trigger for a short-squeeze can be even slightly good news.
Stock rankings
The chart also shows the relative rankings of the 11 popular tech stocks. These 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.
Nibbling
It is time to nibble stocks and ETFs that are in the buy zones, provided you meet the protection criteria with the understanding that the probability is about 65% that the rally will fail. To learn about protection criteria, please see “Stock market investors are asking ‘should I buy or sell?’ Here’s how to decide.”
Where is the bottom?
The question about the stock market I am being asked most often is: “Where is the bottom in this stock market?” Opinions are a dime a dozen. To learn about an easy, objective way that all investors can use, please see “Stock market opinions abound — here’s an objective way to tell when the market bottoms.”
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.
