DOW CONTINUES TO FLIRT WITH 20K -- WHILE NASDAY CLOSES AT RECORD HIGH -- INTERNET INDEX TURNS UP WITH FANG STOCKS BACK IN FAVOR -- FACEBOOK, AMAZON, AND GOOGLE IMPROVE -- NETFLIX HITS NEW RECORD -- BIOTECHS HELP MAKE HEALTHCARE WEEK'S STRONGEST SECTOR
DOW FLIRTS WITH 20K... Let's get this out of the way first. If you've been watching business TV, all they've been talking about is the Dow nearing the 20,000 level. Much to their dismay, it came close on Friday but couldn't make it. The Dow touched 19999.63 before backing off. Historically, big round numbers have acted as magnets during market advances. At the same time, traders are often inclined to take some profits as that big number is approached. The hourly bars in Chart 1 show how close the Dow Industrials came to the 20K level a number of times over the last month. Technically, the Dow is still in an over-extended condition which explains why it's been moving sideways for the past three weeks. That's not unusual with a market working off a short-term overbought condition. Odds still favor resumption of its uptrend. The bigger market story this week, however, was the stronger action in the Nasdaq market. The Nasdaq closed in record territory on Friday. A rebound in biotechs helped. But most of the buying came from technology stocks, especially those tied to the Internet. It looks like FANG stocks are back in favor.
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Chart 1
NASDAQ CLOSES AT RECORD HIGH... One of the factors keeping the rally going is that when a leading group stalls (like financials), new money moves into lagging groups like technology (and, to a lesser extent, healthcare). The daily bars in Chart 2 show the Nasdaq Composite Index closing at a new record on Friday. The Nasdaq was the strongest market index for the day and for the week. The Nasdaq has several things working in its favor. First, it's the only major stock index that hasn't reached overbought territory. The 14-day RSI line (top of chart) has remained below the overbought threshold of 70 throughout the recent rally (unlike the Dow and S&P 500 which exceeded that level). Secondly, the Nasdaq has been a market laggard. The solid line in Chart 2 shows the Nasdaq/S&P 500 ratio just starting to turn up after dropping during November. You may recall the post-election rotation out of growth stocks (mainly technology) and into value stocks (like financials) as the market jumped. It now looks like money is starting to flow back into cheaper technology stocks. It's not necessarily that money is leaving leading groups like financials. It may be more that "new" money is being allocated to stock groups that are starting to catch up to the rest of the market. Like Internet stocks.
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Chart 2
DOW JONES INTERNET INDEX TURNS UP... Internet stocks were one of the week's strongest technology groups. The daily bars in Chart 3 show the Dow Jones US Internet Index breaking through its December high to reach the highest level since the election. The index had dropped all the way to its 200-day moving average where it found a bottom. Its 14-day RSI line (top of chart) has turned up (see circle). So has the Internet/S&P 500 ratio (solid line) which had plunged during November. That made Internet stocks one of the cheapest parts of the technology sector. That may explain why money looking for bargains is moving back in. That's especially true of the so-called FANG stocks, which include Facebook, Amazon, Netflix, and Google-parent Alphabet.
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Chart 3
FANG STOCKS TURN UP -- NETFLIX HITS NEW RECORD... The next four charts show the individual FANG stocks. Chart 4 shows Facebook (FB) clearing both its 50- and 200-day moving averages on Friday (on rising volume). It's now at a two-month high. The Facebook/SPX relative strength ratio is just starting to turn up. Chart 5 shows Amazon.com (AMZN) is a similar (though slightly stronger) situation. Chart 6 shows Alphabet (GOOGL) even stronger. Their relative strength lines (top of charts) appear to be bottoming as well. Chart 7 shows Netflix (NFLX) hitting a record high on Thursday. It's clearly the strongest of the four. [Another positive sign for the technology sector is that its biggest stock -- Apple (AAPL) -- is on the verge of a new record].
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Chart 4
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Chart 5
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Chart 6
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Chart 7
BIOTECHS BOOST HEALTHCARE ... Healthcare was the week's strongest sector. That's a big change from being the market's weakest sector since the election. That may also be a sign that money is looking for bargains. The jury is still out on healthcare, however. Chart 8 shows the Health Care SPDR (XLV) climbing above its 200-day moving average this week. It still needs to clear its November high to turn its trend back up again. The biggest boost to that sector came from biotechs. Chart 9 shows the Nasdaq Biotechnology iShares (IBB) climbing this week. Biotechs have been trending sideways for the last year in a potential bottoming pattern. They have a long way to go to accomplish that. This week's biotech bounce may also be helping the Nasdaq market. Some of its biggest stock gainers this past week were in the biotech space. Alexion Pharmaceuticals (ALNX) was the week's biggest percentage gainer in the Nasdaq 100 (see Chart 10).
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Chart 8
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Chart 9
