Professional investors are cautious yet still participating in the bull market
Getty ImagesShopping for stocks — large-caps, yes; small-caps, no.DMAMBMCMDMEMGZBZBRZDZDRZFZGZQZRZSZTZU
The U.S. is in a raging bull market in stocks.
Some gurus continue to revise their upward targets for stock prices. But many keep warning of a crash. What is the average investor to think — and how to act? And how does he or she gain an edge?
The simplest way to gain an edge is to look at money flows. When more money is flowing into the market than out of the market, the market goes up, and vice versa. Let us examine the issue with charts showing the current money flows in three popular ETFs and 10 popular technology stocks.
Please click here for the chart of money flows in popular tech stocks. The chart includes FAANG stocks Facebook (FB), Apple (AAPL), Amazon (AMZN), Netflix (NFLX) and Google (GOOG) (GOOGL). In addition, aggressive investors are concentrated in AMD (AMD), Alibaba (BABA), Microsoft (MSFT), Nvidia (NVDA) and Tesla (TSLA). For this reason, those stocks are also included in the chart.
Please observe the following from the charts:
• A bigger edge is to be gained by examining money flows in three categories that matter. At The Arora Report we examine smart money flows, momo (momentum) money flows and short squeeze money flows.
• For the most part, the momo money flows range from positive to extremely positive. This indicates that the momo crowd continues to aggressively buy stocks.
• Smart money flows in general have been ranging from negative to mildly positive.
• Smart money flows are mildly positive in large-cap stocks, represented by S&P500 ETF, but the smart money is not chasing small-cap stocks, Nasdaq stocks and popular technology stocks. This indicates that the smart money is cautious but still participating in this bull market.
• In general, the smart money is not selling.
• Short squeezes occur when short sellers are forced to buy. Short squeezes add to the upside momentum artificially due to market mechanics and not due to fundamentals. The charts show that short squeezes are contributing heavily to the market increase.
To get more of an understanding of what is happening in the stock market, please see “Money managers are being forced to buy stocks, keeping the rally alive.”
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.
What to do now
The market is likely to be driven by headlines and rumors regarding tax reform.
At The Arora Report, for timing, risk control and allocations, we depend on the highly complex adaptive ZYX Global Multi Asset Allocation Model. In plain English, “adaptive” means it changes itself with market conditions. The model is comprehensive in that it has inputs in 10 categories that truly matter. We simply leave out other data that do not reliably determine the course of the markets.
Based on the ZYX Global Multi Asset Allocation model, we answer for our subscribers the key question: “What to do now?” We specify appropriate cash levels and appropriate hedges. Currently the model is bullish and does not see a crash but advocates protective measures as a correction can happen anytime due to overbought conditions of the stock market.
Prudent investors ought to look for special situations and patterns. For examples of Wal-Mart (WMT), Intel (INTC), Cisco (CSCO) and Applied Materials (AMAT), please see “Follow this pattern to make money outside FAANG stocks.”
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. All recommended positions are reviewed daily at The Arora Report.
Nigam Arora is an investor, engineer and nuclear physicist by background, has founded two Inc. 500 fastest-growing companies, is the developer of the adaptive ZYX Global Multi Asset Allocation Model and the ZYX Change Method to profit from change in trading and investing. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.
Nigam Arora is an engineer, nuclear physicist, author, and entrepreneur and the founder of two Inc. 500 fastest growing companies. He is also the developer of the ZYX Change Method to profit from change by investing. The premise is that most money is made by predicting change before the crowd. Arora is the chief investment officer at The Arora Report and the editor of four newsletters that track the ZYX Change Method. Nigam can be reached at Nigam@TheAroraReport.com
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