Money is starting to move away from stocks that have performed well, while the economy has closed to fight the coronavirus. Changes have accelerated since Moderna announced impressive data from a phase 1 trial for a coronavirus vaccine.
Investors must now look into the post-vaccine world: sell stocks that are hot today but will experience a deterioration in profit dynamics after the release of a vaccine and buy quality stocks with good balance sheets that will experience positive profit dynamics in this new era.
This painting Compare the Dow Jones Industrial Average ETF
DAY
to seven actions that I use to illustrate the changes in the flow of money.
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Consider the following:
• Video zoom
ZM
He was one of the biggest beneficiaries of the coronavirus. As the graph shows, stocks have risen about 140% since the start of the year. As the economy opens up and a vaccine may emerge sooner than expected, the price for Zoom Video begins to rise. We believe that the flow of smart money into stocks is now negative.
Zoom Video has gained many free customers. In our analysis, you will have trouble turning these free customers into paying customers. He also faces fierce competition, has experienced security concerns and an unattractive stock valuation. For these reasons, the shares must be sold. The Arora report recently took a short stance on Zoom Video.
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• Smart money flow at Peloton Interactive
PTON
They are also negative. Platoon benefited from keeping people at home and closing the gymnasiums. The company posted very good results and recently reached the milestone of one million connected users. I think it will continue to grow. However, the current valuation is not attractive and the positive sentiment behind the action may not be as positive as the economy opens.
The Arora report made a profit on most of its position in P eloton and is now leaving the remaining position.
• Smart money flow at Teladoc Health
TDOC,
They are also negative. Teladoc took advantage of the transition to telemedicine when the coronavirus closed. Some of these benefits will persist as the economy opens, but as the graph shows, stock prices rocket. The current high valuation is not expected to continue. The Arora report had previously taken advantage of its Teladoc position.
• Smart money flows are also negative at Slack Technologies
EMPLOYMENT,
Slack faces strong competition from Microsoft
MSFT
Equipment product. The current positive feeling towards stocks is not sustainable and stocks must be on a sales list. The Arora report has no position in Slack; however, it does have shares in Microsoft.
• Smart money flows are positive at Walmart
WMT
and slightly negative on Amazon
AMZN
two other companies that have benefited from the coronavirus. As the graph shows, the Walmart and Amazon stocks are not capsizing. Walmart said profits exceeded consensus and whispered figures. The gains Walmart has seen are lasting. The valuation is rich but justifiable. The Arora report has long-term positions at Walmart and Amazon.
• Smart money flows are also positive at Disney
DIS
The coronavirus has hurt the business, but money is now flowing into the stock. As the graph shows, the share price is rising. The Arora report bought Disney when the stock fell in our shopping area in March.
What does all this mean?
The variations in the cash flow market described above are a positive sign for the stock market as they indicate a variation in stocks which is likely to have a slow profit dynamic to an accelerated profit dynamic. The emphasis here is on “the momentum of profit” and not only on profit.
As a precaution, this does not mean that investors must necessarily rush out and buy stocks. From a technical point of view, the stock market is highly overbought and vulnerable to a decline, unless the second stage of compression begins.
I widely use the technique of trading positions, short-term positions surrounding central positions, which in turn are partially hedged. Investors should consider separating strategic decisions from tactical decisions and also short term operations from long term investments.
Disclose: The Arora report holds shares in WMT, AMZN, MSFT, DIS and has sold or taken a short position in ZM, PTON and TDOC. Nigam Arora is the founder of The Arora Report, which publishes four newsletters. He can be contacted at [email protected].