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Tech stocks are on fire. As a result, it’s natural for investors who are underweight in tech to want to add to their tech stock holdings.
Since late January’s convulsion in the stock market, flows to stocks have changed, particularly among tech stocks. Here is an oft-asked question: “Which stock is number one among popular tech stocks?” Let us explore with the help of a chart.
Please click here for the chart showing money flows and ranks of the 10 most popular tech stocks.
Please note the following from the chart:
• The chart shows segmented money flows. The concept is rather simple: Stocks that have more money flowing in are likely to go up more. In practice it does not always work out that way. This is the reason to segment the money flows into three categories: smart money (professionals), momo (momentum) crowd and short squeeze (bears are forced to buy shares to cover their positions).
• The chart shows ranks based on the six screens of the ZYX Change Method. You can learn about the six screens by clicking here.
• Based on non-risk-adjusted rank, Netflix is No. 1 and Amazon is No. 2.
• Based on risk-adjusted rank, Alibaba is No. 1 and Facebook is No. 2.
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Which stock is really No. 1?
It depends on what kind of investor you are and what you are trying to accomplish. If you are a super-aggressive investor looking for a very short-term trade, you should pay attention to the non-risk-adjusted rank. If you are a growth-oriented investor looking to enter a long-term position, you should pay attention to the risk-adjusted rank.
It is important for investors to have a well-diversified portfolio, not only in tech but also among various other sectors.
The market is very high and overbought in the very short term. For this reason, those who are considering buying now may consider scaling in. The Arora Report provides complete guidelines to scale in. Professionals tend to scale in.
Those with sophistication, self-discipline and patience may consider buying only on dips into the buy zones. The Arora Report provides buy zones for select stocks.
The foregoing will help you if your goal is to generate high risk-adjusted returns, i.e., returns in excess of those commensurate with the risk taken.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article. Nigam Arora is an investor, engineer and nuclear physicist by background, and has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.