We got some good news and some bad news yesterday. The good news is that the major stock averages regained more than they lost on Wednesday…and the rally came on very good breadth. The bad news is that it came on very low volume. In fact, if you don’t count the first day of trading this year (after the holiday), the composite volume was the lowest of the year! The same is true for the volume on the QQQ Nasdaq ETF (whose 2.2% rally led the charge higher yesterday). Therefore, the buying power was not anywhere as strong as it was on the other recent days when the market has seen a strong rally.
That said, the lack of volume was pretty much the only thing about yesterday’s rally that was disappointing. On top of the very strong breadth, all of the S&P groups closed in positive territory…and one of the most important leadership groups in the marketplace (the semis) were particularly strong. Led by an almost 10% rally in NVDA, the SMH semiconductor ETF jumped almost 5%...and moved back above its 200-DMA. We’d also note that the FAANG stocks continued to rally nicely. No, they weren’t as strong as the chip stocks yesterday, but they HAVE been quite strong lately…as an equal weighted index of the FAANG names has rallied more than 15% since its March 8th lows!
This FAANG index is now testing a key resistance level. It’s bumping up against its early February highs…which is also a 50% retracement of the sell-off in these names that began in November. Therefore, if it can rally further…and give us a key “higher-high,” it should bode very well for these names as we move towards the end of the first quarter (which comes next Thursday). If, however, it fails at this level…and rolls back over going forward, it’s going to be bearish for these names…which would not be great for the broad market either. Therefore, even though we’ll continue to keep a very close eye on the SMH over the next few trading days, we’ll be keeping a close eye the FAANGs as well. (First chart below.)
Of course, the action in these FAANG names has been different for each one over the last year or so. AAPL and GOOGL have been very strong…AMZN has been range-bound…and FB and NFLX have not acted well at all. It’s interesting to note, however, that they’ve all bounced quite nicely over the past two weeks or so. In fact, FB and NFLX has bounced just as much as AAPL and GOOGL. (It doesn’t SEEM like those two stocks have bounced as much…because they have retraced much smaller amounts of their declines…due to the fact that they had dropped much ore than those other two highflyers.)
However, AMZN has actually been the best performer over the past two weeks. While the others have bounced about 15% or so, AMZN has jumped more than 20%. This has taken the stock back into the sideways range it had been in for 18/20-months (before it fell below that range over the past two months). It is interesting to note that this recent rally has taken the stock back to its long-term trend-line…going all the way back to its lows during the Great Financial Crisis. That’s right, if you look at the log chart, AMZN broke below its long-term (13-year) tend-line back in January. Now, it’s trying to regain that line. Therefore, whether it rallies further from its current level…or rolls back over in a serious fashion…should be quite important for the longer-term technical condition of this all-important stock.
We readily admit that AMZN has not been a bellwether stock for the broad stock market for quite some time. We also won’t be worried about AMZN’s long-term prospects if it fails to regain its multi-year trend-line soon. However, this stock has been dead money for almost two years now…and it is still very widely held by many institutions. Given its market cap, we’re sure it will continue to be a very large holding for the big players. However, whether it can finally gain some serious upside momentum…or rolls back over in a significant way…over the next several months, could/should be important. Depending on what happens, it could/should lead some of these big investors to add to…or pare back…their holdings in a material way. (Second chart below.)
Finally, we just wanted to say how sorry we were to hear that Ned Johnson, Fidelity’s retired CEO, passed away yesterday. Mr. Johnson kept a very low profile, so he was not as famous as other Wall Street titans. However, you can count on one hand the number of people who had as much of an impact on the investment landscape over the last 50+ years as Mr. Johnson did…..Our thoughts and prayers are with his family.
Matthew J. Maley
Chief Market Strategist
Miller Tabak + Co., LLC
Founder, The Maley Report
275 Grove St. Suite 2-400
Newton, MA 02466
Although the information contained in this report (not including disclosures contained herein) has been obtained from sources we believe to be reliable, the accuracy and completeness of such information and the opinions expressed herein cannot be guaranteed. This report is for informational purposes only and under no circumstances is it to be construed as an offer to sell, or a solicitation to buy, any security. Any recommendation contained in this report may not be appropriate for all investors. Trading options is not suitable for all investors and may involve risk of loss. Additional information is available upon request or by contacting us at Miller Tabak + Co., LLC, 200 Park Ave. Suite 1700, New York, NY 10166.