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This money-flow chart shows that Amazon and Netflix are in dangerous territory
By: Hedgopia | October 27, 2018

Investors were too complacent when Amazon topped $2,000 and Netflix surpassed $400

Money flows are showing that Amazon and Netflix are killing the popular FAANG trade.

What if you had a stock that gave you the foresight of what most are now seeing in hindsight? Yes, such a tool exists in segmented money flows.

When you invest based on the information and analysis that is freely and widely available and used by everyone else, you get no edge. In a rip-roaring bull market like we have experienced over the past nine years, this behavior works out fine, but not great. However, when markets become volatile or a bear market comes, you need an edge to be successful. Segmented money flows provide you one of the best edges out there.

While the momo (momentum) crowd was aggressively buying popular tech stocks in the beginning of October, the smart money had turned cautious in September. Remember, the Dow Jones Industrial Average DJIA, -1.19% fell 22.6% on Oct. 19, 1987, and the stock market suffered a major drop in October 2008. As for this year, please see “Fear of October is creeping into money flows in 11 popular tech stocks.”

Even after a downdraft started, the crowd has maintained a high degree of complacency. Investors are suffering from recency bias. Please see “Would you be prepared if the Dow Jones Industrial Average were to fall 5,700 points?”

Chart

Please click here for an annotated chart of 11 popular tech stocks. Please note the following:

• Momo crowd money flows in Amazon AMZN, -7.82% have dramatically changed. Previously they have been consistently positive. Now they have become negative. Smart money flows in Amazon have been consistently neutral to mildly negative. Now they are mildly negative.

• With Netflix NFLX, -4.17% it’s similar. The smart money is mildly negative on the stock, and the momo crowd is very negative.

• Amazon and Netflix represent examples of uninitiated investors getting carried away with their convictions in the face of negative smart money flows. We witnessed it firsthand at The Arora Report. When Netflix was over $400, new subscribers would take a 30-day free trial to our ZYX Buy Change Alert to find that Netflix was not in our model portfolio. They would ask why Netflix was not in our model portfolio. We would explain that in addition to the potential reward, our system takes into account risks and there was too much risk in Netflix at that time. Some investors had such high conviction in Netflix that they would respond by demanding the Netflix be included in our model portfolio or they would cancel their subscription. Netflix has fallen from a high of $420 to about $300 as of this writing.

The same thing happened when Amazon was over $2,000.

• Smart money flows in Intel INTC, +3.11% have been consistently positive. Intel reported earnings better than the consensus and the whisper numbers. Stocks move based on the difference between the actual reports and the whisper numbers. Momo crowd money flows in Intel have been negative.

• It is easy to see how segmented money flows kept investors on the right side in Intel. The same thing happened in AMD AMD, -8.51% Prior to the plunge in AMD, momo crowd money flows in AMD were extremely positive. Smart money flows in AMD were neutral to negative.

After the plunge in AMD, smart money flows are neutral but momo crowd money flows are extremely negative. Smart money flows, in part, helped The Arora Report give a sell signal to take partial profits on AMD near the high at $33.60. AMD stock is trading in the $18 range as of this writing.

• Smart money flows in Nvidia NVDA, -4.59% have been negative, but momo crowd money flows have been positive. Again, smart money flows helped investors avoid the big drop in Nvidia stock. Now after the drop, momo crowd money flows have turned negative in Nvidia.

• Momo crowd money flows are extremely negative in Facebook FB, -3.70% and Alibaba BABA, -1.20%

• Momo crowd money flows are positive in Apple AAPL, -1.59% Tesla TSLA, +5.09% and Microsoft MSFT, -1.24%

• Smart money flows are neutral in Google GOOG, -2.20% GOOGL, -1.80%

• As of this writing, the weak hands have not yet been shaken out, but that can happen soon. Typically bottoms are formed when weak hands are shaken out. Please see “‘Buy-and-hold’ investors are keeping the faith — and endangering themselves.”

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