FED CONTINUES ITS TAPERING WITH NO SURPRISES -- DOW AND S&P 500 NEAR RECORD HIGHS -- VALUE STOCKS CONTINUE TO LEAD, BUT GROWTH STOCKS ARE STARTING TO RECOVER -- BIOTECHS, INTERNET, AND DISCRETIONARY INDEXES ARE FINDING SUPPORT NEAR 200-DAY LINES
DOW AND S&P 500 NEAR RECORD HIGHS... Today's Fed announcement slashed another 10 billion from its monthly bond purchases as expected, and contained no surprises. In addition, first quarter GDP growth was basically flat. Despite that, stocks continued their recent bounce. Charts 1 and 2 show the Dow Industrials and the S&P 500 nearing tests of 2014 highs. Both are trading above their 50-day moving averages. One of the reasons those two large cap indexes are leading the rally is because they include a lot of value stocks that money has been rotating into recently.
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Chart 1
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Chart 2
VALUE SHARES LEAD MARKET HIGHER... A recent message showed that value shares were starting to lead the market higher toward the end of the first quarter. Chart 3 shows the S&P 500 Value iShares (IVE) surging to record highs during March. The rising IVE/SPX ratio (above chart) shows relative strength in these larger and cheaper stocks. The three biggest sectors in the IVE are financials, energy, and consumer staples. Chart 4 shows relative strength lines of five of the biggest value stocks that have outperformed the S&P 500 (flat black line) since March 1. The list includes AT&T (by 12%), Chevron (by 7%), Intel (by 6.5%), WalMart (by 6%), and Wells Fargo (by 5.8%). Other big outperformers include Exxon Mobil and General Electric which bested the S&P 500 by 5%. Those are some of the bigger stocks that are leading the Dow and the S&P 500 higher.
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Chart 3
Chart 4
GROWTH STOCKS UNDERPERFORM... Chart 5 shows the S&P 500 Growth iShares (IVW) losing ground during March and April as investors rotated out of riskier growth stocks into safer value shares. Their relative weakness can be seen by the falling IVW/SPX ratio (top of chart). Although the IVW has underperformed the S&P 500 since March, it hasn't suffered much chart damage. Chart 5 shows the April bottom in the growth ETF remaining well above its February low and its 200-day average (red line). Today's action shows it also moving back above its 50-day moving average. The three biggest sectors in the IVW are technology, consumer discretionary, and healthcare (including biotech). Those were the three biggest losers over the last two months. [Fortunately, its biggest holding is Apple which has surged over the last two weeks]. Three of the weakest groups are testing their 200-day moving averages, while their RSI lines are in oversold territory (as shown in Charts 6, 7, and 8). The key to overall market direction may very well depend on those 200-day lines holding. [The same is true of small cap indexes which are also testing 200-day lines].
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Chart 5
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Chart 6
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Chart 7
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Chart 8
NASDAQ 100 TRYING TO RALLY... Chart 9 shows the PowerShares QQQ Trust gaining a little ground today in light trading. The QQQ represents the 100 largest non-financial stocks in the Nasdaq market. So it carries a lot of weight. The chart shows the QQQ bouncing off chart support along its early February low a couple of weeks ago. Overhead chart support, however, is visible at its 50-day moving average (blue line) and last week's intra-day high at 88.21. The QQQ needs to clear both barriers to turn its short-term trend back up again. A close over 88.21 would also negate the possibility of a "head and shoulders" pattern being formed. [The red resistance line is drawn over its mid-January and late-April potential "left and right shoulders"]. And, as is usually the case, the direction of the QQQ would help determine the short-term direction of the overall market.
