Earnings on many popular tech stocks, including FAANG stocks, are out. For the most part, earnings are better than the consensus numbers but worse than the whisper numbers.
Moreover, tech stocks have had a good run. How much of the good news is already discounted in the prices? Should you buy or sell? A helpful technique is to look at segmented money flows.
Please click here for a chart showing money flows in popular tech stocks. It shows money flows in FAANG stocks of Facebook FB, Apple AAPL, Amazon AMZN, Netflix NFLX, and Alphabet GOOG, GOOGL.
It also shows money flows in popular tech stocks of AMD AMD, Alibaba BABA, Microsoft MSFT, Nvidia NVDA, and Tesla TSLA.
Note the following:
• The “smart money flows” are positive only for Facebook and Alibaba.
• Those flows are negative for AMD, Nvidia and Tesla.
• They are neutral for Apple, Amazon, Netflix and Alphabet.
• The momo (momentum) crowd is aggressively buying tech stocks.
• Short squeezes are adding to the buying. In a short squeeze, short sellers panic and buy to cover to cut their losses. This adds fuel to the fire.
The same chart shows relative rank of the five FAANG stocks. The ranks are determined by the ZYX Change Method, which takes into account not only probability-adjusted rewards but also probability-adjusted risks. Facebook is ranked No. 1, and Netflix is fifth.
Benefit from some sophistication
Most investors can benefit from some of the sophisticated techniques that smart money uses.
The smart money puts lots of emphasis on risk and takes a portfolio approach. With the run in tech stocks, these have become outsize positions in many portfolios.
From a risk perspective, it doesn’t make sense to add to positions that are already disproportionately large. Instead, it makes sense to trim into strength….Read more at MarketWatch
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