Market Direction and Stock Trends

[DiscoverGold]

Huawei ban is hurting tech stocks — here’s what money flows are showing
By: MarketWatch | May 20, 2019

Smart money flows are positive in Alphabet, and momentum-crowd money flows are negative

President Trump’s ban on China telecom giant Huawei is hurting technology stocks because Huawei is a big customer of prominent U.S. companies.

Which companies may be hurt more than others? For astute investors, segmented money flows provide an edge in doing good analysis. 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 the Dow Jones Industrial Average DJIA, -0.33% and ETFs such as the S&P 500 ETF SPY, +0.62% Nasdaq 100 ETF QQQ, +0.76% and small-cap ETF IWM, -0.69% Please note the following:

• Facebook’s FB, -2.78% stock is the only one with very positive smart money flows and momo (momentum) money flows. The reason is that Facebook does not do any material business in China.

• Alphabet GOOG, +0.70% GOOGL, +0.65% just revoked Huawei’s Android license. Huawei has become a major force in smartphones and has been rapidly gaining market share. In the short term, Huawei phones are likely to keep working. It appears that Huawei phones will be able to maintain access to the apps on the Google Play Store.

Huawei may also be able to rely on AOSP (Android Open Source Project). Huawei has also developed its own operating system.

Huawei may be able to maintain its market share inside China. However, proprietary Google services will likely become inaccessible on Huawei phones and this may make it difficult for Huawei in international markets including India and Europe.

The chart shows that smart money flows are positive in Alphabet (Google) stock. In contrast, momo crowd money flows are negative.

Smart money flows make sense because Google does not generate material revenue from China.

• Intel INTC, +1.35% will lose some business from Huawei but the loss is not significant. Perhaps this is the reason that smart money flows in Intel stock are mildly positive. Furthermore, Intel stock is very oversold, provides a good dividend and the valuation is cheap. Of course, the momo crowd does not care about these things; momo crowd money flows are negative in Intel stock.

• In a surprise, the momo crowd money flows have just switched from positive to negative in AMD AMD, +1.61% stock.

• China poses significant risk for Apple AAPL, +0.89% stock, though momo crowd money flows are very positive.

• Amazon AMZN, +0.86% does not drive material revenue from China. Momo crowd money flows are positive in Amazon stock. Smart money flows are neutral. Perhaps because of concern that if the market falls, Amazon stock may be hit hard.

• Momo crowd money flows are very positive in Netflix NFLX, +0.83% stock but smart money flows are mildly negative.

• Smart money flows in Alibaba BABA, +1.59% stock are neutral. The reason may be that Alibaba is likely to continue growing irrespective of the trade war.

• Smart money and momo crowd money flows are negative in Nvidia NVDA, +1.44% stock and Tesla TSLA, -3.18% stock.

• Smart money and momo crowd money flows are neutral in Microsoft MSFT, -1.44%

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.

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 up a lot if a short squeeze starts. Often the trigger for a short squeeze is slightly good news.

Rankings

The chart shows the 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

Based on the emails I have received, caution is warranted against short-selling semiconductor stocks at this time. Those stocks are oversold. The slightest bit of good news can ignite a rally. There may be opportunities to start trade-around positions in semiconductor stocks from the long side.

As full disclosure, The Arora Report recently gave a signal to short-sell ETF QQQ, +0.76% because it represented better risk-reward. We also gave a signal on inverse ETF PSQ, +1.62% for those who cannot short.

Our call to sell internet ETF FDN, -0.93% right before the fall has proven spot on.

This is a good time to follow Arora’s 14th Law of Investing: To be successful in investing and trading, become a master of position sizing. Consider reviewing your position sizes in tech stocks to make sure they are appropriately sized.

Read Full Story »»»

• DiscoverGold