Stocks continued their volatile ways Wednesday with major indexes reversing lower as Apple (AAPL) and China stocks weighed.
SPDR Dow Jones Industrial Average (DIA) slipped to a 0.1% deficit, SPDR S&P 500 (SPY) reversed to a 0.5% loss and PowerShares QQQ Trust (QQQ) sank 1.3%. Foreign markets lagged as iShares MSCI EAFE (EFA) slid 1.1%; iShares MSCI Emerging Markets (EEM) tumbled 3.2%.
Homebuilders, financials and retail led the upside among sector funds in the stock market today. SPDR S&P Retail (XRT), up 1.9%, retook its 50-day moving average. Component stock Walmart (WMT) advanced 3% as the retail giant was one of the Dow industrials’ top gainers.
Meanwhile, Apple was the biggest blue chip loser, with a 2% drop. A new Goldman Sachs analyst began covering the iPhone maker with a neutral rating. The stock was again testing its its 200-day line, after reclaiming it Tuesday. Shares are 11% off their recent high.
Energy, semiconductor and gold plays underperformed. Both West Texas intermediate crude and gold futures were lower. VanEck Vectors Semiconductor (SMH) and iShares PHLX Semiconductor (SOXX) gave up 2% and 1%, respectively. Both ETFs are hitting resistance at their 50-day lines, which they breached during Monday’s market sell-off.
Bitcoin gained 5% to $8,105.68, according to CoinDesk, after rising to $8,582.93 earlier. Bitcoin Investment Trust (GBTC) leapt 10% as it extends its Tuesday rebound off the 200-day line. The cryptocurrency play is still 64% below its December peak. Bitcoin rose despite a warning from Goldman Sachs.
FANG Stock Play?
Monday’s stock market rout was ugly, but Tuesday’s equally wild rebound set up some potential buy opportunities including an ETF that holds Amazon (AMZN), Facebook (FB) and Netflix (NFLX).
But first, it’s important to keep in mind that all purchases are riskier than usual with the market uptrend under pressure.
First Trust Dow Jones Internet Index (FDN) breached its 50-day moving average intraday Tuesday, before staging a sharp upside reversal to close with a 2% gain. The solid move above the support line puts the ETF near the top of a potential buy zone. But another advance Wednesday pushed it just out of buy range. Shares advanced 16% from an early December bounce off the 50-day to a Jan. 29 intraday high.
The $5.9 billion fund was last featured in this ETF column on Dec. 7, as shares were in buy range. It tracks the Dow Jones Internet Composite Index, which comprises companies generating 50% or more of their annual revenue from the internet. Stocks making the index must also have a three month trading history and three-month average market cap of at least $100 million.
Information technology made up the biggest sector weight as of Feb. 5, at roughly 69% of assets. Consumer discretionary represented 22%, financials 5%, and telecom and health care, about 2% each.
Amazon, Facebook and Netflix were the top three holdings in the 42-stock portfolio as of Feb. 5. The top five stocks accounted for about a third of assets, at just above 34%. The three internet giants have outperformed the broader market this year with respective gains of 23%, 5% and 38% vs. the S&P 500’s 1% return. Google parent Alphabet (GOOGL) is also a top 10 name. Combined with the other three, the companies are collectively known as the FANG stocks.
FDN has returned 5% year to date through Monday. Its average annual returns of 23.1%, 22% and 17.6% over the past three, five and 10 years, respectively, also outpace the benchmark index’s gains for those periods, according to Morningstar Direct. FDN carries a 0.54% expense ratio.
Tuesday’s picks, ProShares Short S&P 500 (SH) and ProShares UltraShort S&P 500 (SDS), both reversed lower after an initial spike. The pair of inverse ETFs closed just above their 50-day lines.