Friday proved to be an unusual session as growth-style stocks and income-type utilities rallied in lock step amid a broad advance in the stock market today.
X The Dow utility average shot more than 2% higher, beating gains of 0.7% to 0.9% for the S&P 500 and the Nasdaq composite. The Dow Jones industrial average gained nearly 0.6% as 12 of the 30 components rallied 1 point or more.
The Dow utilities are a big laggard so far in 2018, falling as much as 17% below its December peak of 778. Yet these dividend-rich defensive plays are getting relief from reports that members of the Federal Reserve’s FOMC policy board are hinting at a continued “go slow” approach toward raising the cost of money.
While a quarter-point hike in the short-term fed funds rate is likely in the bag during next month’s meeting on interest rates, futures traders still see less than a 40% chance that by year’s end, the Fed would raise the fed funds rate by more than three times. The current target range is 1.25%-1.5%, and the majority of futures traders tracked by CME Group see the range rising to 2%-2.25%.
That rate would still be much lower than the expected 12-month forward earnings yield of the S&P 500, which is around 5% to 5.5%, depending on which Wall Street investment strategist you trust.
Meanwhile, Google search engine operator Alphabet (GOOGL) looked poised to finish a second straight week up. The internet content titan is up just 0.5% to 1,115.40, but Friday’s advance is the eighth in 10 sessions.
Like the Nasdaq itself, Alphabet has turned in an impressive rebound after tickling its 200-day moving average Feb. 9.
See on a daily chart how the megacap tech ($775 billion in market value, which is share price times shares outstanding) bounced sharply off its intraday low on Feb. 9, then finished up big in whale-like volume. That’s bullish.
For now, Alphabet is in a new base, less than 7% below its all-time peak of 1,197. The recent correction of 17% from head to toe is too deep to be a potential flat base. The correction is also too narrow in time to serve as a cup or a cup with handle. So keep watching.
Also keep an eye on Alphabet’s proprietary ratings.
The Relative Price Strength Rating is not great, but at 78 on IBD Stock Checkup it’s decent for a mature large cap. The very best growth companies tend to show an RS Rating in the high 80s or more. However, Alphabet, for now, should be viewed as a potential new big cap leader.
Alphabet’s Composite Rating is grand at 98.
Elsewhere, Bitcoin Investment Trust (GBTC) rallied more than 6% to 17.82 following positive reports that South Korea in fact may allow certain types of transactions in digital currencies. However, as noted frequently in IBD’s Stock Market Today columns, the closed end fund has a very long way to go before forming a legitimate new base and staging a potential new breakout point.
Universal Display (OLED) got hammered again, falling 15% to 131 in massive volume. The expert in organic light-emitting diodes for TVs and smartphone displays reported stout earnings growth, up 69%, as revenue jumped 55% to $115.9 million.
However, the former stock market leader had already triggered two key sell signals: 1) Universal slammed beneath its 50-day moving average in huge trade on Jan. 24-25; and 2) the stock triggered the golden rule of investing as it slid 8% below the most recent late-stage base buy point of 192.85.
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(Please follow Saito-Chung on Twitter at @IBD_DChung for more commentary on financial markets and top stocks.)