Opinion: Professional investors are no longer excited about popular technology stocks – MarketWatch

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Technology stocks have been hot this year. And excellent earnings are expected when big companies start reporting this week.

Given the momentum and aggressive buying by the momo (momentum) crowd, expectations are widespread that earnings will be the catalyst for another leg up in popular tech stocks.

My longtime readers have been asking about what the smart money is doing ahead of earnings. In my view, this is the right line of inquiry for prudent investors. The smart money — professional investors — pays attention to both risk and reward. The momo crowd is often oblivious to risks.

Please click here to see a chart showing the smart money’s actions in eight popular tech stocks. This includes FAAMG and FAANG stocks. FAAMG stocks are Facebook FB, -0.47% Apple AAPL, +0.65% Amazon AMZN, +0.68% Microsoft MSFT, +0.32% and Google GOOG, -0.28% GOOGL, -0.16% The FAANG acronym includes Netflix NFLX, +0.37%  and excludes Microsoft. The table also includes Advanced Micro Devices AMD, -1.80% and Nvidia NVDA, -0.83% as investor interest in those two stocks is high.

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.

Notice from the chart that money flows are positive from the momo crowd. (‘Momentum’ investors buy stocks even though gold and bonds are warning them.) However, the smart-money flows are neutral. Here is how I interpret the smart-money flows at this time.

• The smart money is concerned about risks in those stocks.

• The smart money is giving priority to return of capital over return on capital.

• The smart money is not necessarily disagreeing with the prevailing wisdom that those stocks will take another leg up after earnings.

• The smart money is also not too concerned about the potential of those companies reporting bad earnings. The smart money is not selling at this time.

In plain English, the smart money just does not want to lose money by buying those stocks at these high prices even at the cost of missing out on another up leg.

Read: Four key sectors to watch closely this earnings season

Some of the up move is a short squeeze, as shown on the chart. During the recent downturn in the stocks, those who sold short are now being forced to buy to cover. The buying by shorts is adding fuel to the fire on the upside.

The table also shows the rank of the FAAMG stocks based on a proprietary algorithm of The Arora Report. Please note that Apple has now slipped to No. 2 from No. 1, switching places with Facebook.

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.

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