foxex: Over the Top

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Chart Advisor | Focus on the Price

By Gordon Scott, CMT

Wednesday, June 10, 2020

1. Fed meeting leaves indexes mixed

2. Can you beat the indexes?

3. Apple charts new course

Market Moves

Even though markets held a tight range for much of the day in anticipation of the Federal Reserve's Open Market Committee (FOMC) meeting, the Nasdaq 100 (NDX) managed to close at new highs, while the S&P 500 index (SPX) and the Dow Jones Industrial Average (DJI) retreated again today. The Fed announced they intend to keep interest rates low into 2022, giving encouragement to growth-stock investors, but pause to investors of blue-chip companies.

However the CBOE Volatility Index (VIX) did not close higher than yesterday, which is an indication that those investors feeling nervous about the meeting didn't find their fears realized by today's FOMC announcement. This is yet another indication that the healthy, post-pandemic rebound may have more room to climb. The chart below compares three ETFs with Invesco's Nasdaq 100 index ETF (QQQ) over the past two months. This over-the-top performance suggests that better performance can be gained by focusing on sectors in favor with investors right now. State Street's Internet index ETF (XWEB), O'Shares Global Internet Giants ETF (OGIG), and iShares Genomics Immunology and Healthcare ETF (IDNA) all have outpaced the growth-and-tech-heavy QQQ. Such a chart provides evidence to curious investors about what might be possible in the weeks and months ahead.

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Can You Beat the Indexes?

Investors who use a self-directed account and wonder where to allocate their money likely consider whether beating the indexes is possible or even a reasonable goal. Those convinced that it is not only reasonable and possible, but also desirable, may want to review the chart below. Actively managed ETFs are investment funds that literally try to do this work for you, constantly shifting resources to the best opportunities. Sometimes this works, but not always. In the chart below are a few examples of those that have worked recently.

The chart below displays two time frames. The left panel is a year-to-date view of State Street's S&P 500 index ETF (SPY), iShares 20+ Year Treasury Bond ETF (TLT) and three actively managed ETFs including State Street's DoubleLine Total Return Bond-index Tactical ETF (TOTL), SPDR DoubleLine Short Duration Total Return Bond-index Tactical ETF (STOT), and SPDR MFS Systematic Growth Equity ETF (SYG). These actively managed funds try to time the allocation of investor money into various funds with reasonable success, including less drawdown and better gains than the S&P 500. The left half of the chart looks at a time frame of the last two months and breaks out these ETFs into stock-oriented investments (top panel) and bond-oriented investments (bottom panel). This chart is worth zooming into so that you can see how these ETFs have compared against their benchmarks.

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Apple Charts New Course

Analysts at Deutsche Bank upgraded their target price on Apple (AAPL) from $325 to $350. That was all the excuse investors needed. Interestingly enough, the stock closed over two dollars above that number. Apparently investors know something that the bank analysts do not.

This begs the question of just how high the stock could go. Fundamental research is often ill-equipped to identify such a target, while technical analysis offers only chart-based guesswork. That being said, the Fibonacci extension study makes an interesting tool for establishing a guess when a rational one is not so easily found. The chart below shows a 1.61 multiple of the rebound amount and adds it to the price above the old high. This creates a price target near $400 per share. Could Apple get that high? While nothing is impossible, chart watchers will want to keep an eye on the benchmark indexes. Apple is not likely to make new highs without the S&P also doing the same.

The Bottom Line

Stocks had mixed performance again today on the heels of the FOMC meeting announcements. Low interest rates may help growth stocks continue to grow, while investors remain more uncertain about value stocks or income investments. Apple shares continue higher and may hit $400 per share by the end of the year.