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Tech Stocks Diverging From Industrials

|Includes:, Inc. (AMZN), ARKW, DIA, NFLX, TWTR

ARKW continues to outperform the overall market.

ARKW is up 11% in about a month.

ARKW is breaking out to new highs.

Meanwhile, the DOW industrials are down from peak levels.

On February 2, 2018, I wrote that investors should Avoid The Bubble, Sell ARKW Now.  Since then, ARK Web x.0 ETF (NYSEARCA:ARKW) has risen about 11%, but the fundamental reasons for rating the ETF a sell still exist.  

The tremendous rise in price is likely due to a flight away from industrials and towards a tech sector that is lighter on manufacturing. The conventional belief is that the sector would be insulated from a trade war.

Here's a chart showing ARKW's performance relative to the SPDR Dow Jones Industrial Average ETF (DIA). In the long-run, the valuation differences should bring ARKW's return more in line with broader market indices.

Valuations are still stretch!

Amazon (AMZN) trades at a Trailing P/E of 252.56 and a Forward P/E of 101.06

Netflix (NFLX) trades at a Trailing P/E of 255.81 and a Forward P/E of 76.12.

Twitter (TWTR) has no current earnings and Forward P/E of 50.91.

Those are the top 3 holdings of the ARKW ETF.

And what about that Trade War?

If the rest of the market is feeling jitters about a trade war, imagine how ARKW investors will feel if Twitter is banned as a social media app in the same countries that are getting hit with tariffs.

Won't the price of goods on Amazon rise with inflation pressures from tariffs?

Netflix is also making a large international growth push. Are investors unaware that the company could be blocked from entering new markets?

It seems market participants are gleefully ignoring all the risks, as they count their money. 

"Be fearful when others are greedy and greedy when others are fearful." - Some rich guy.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: Short QQQ.