The fourth-quarter slumps by the FANG stocks hammered Internet and technology exchange traded funds, but the First Trust Dow Jones Internet Index (NYSEArca: FDN), the largest Internet ETF by assets, is rallying to start 2019.
Up more than 13% to start the year, FDN is regaining some of the momentum it lost late last year, but some market observers believe investors remain skeptical of the Internet fund’s resurgence. The $7.94 billion FDN follows the Dow Jones Internet Composite Index. With February here, FDN is an ETF to consider, according to historical data.
“The FANG stock-loaded First Trust Dow Jones Internet Index Fund (NYSEARCA: FDN) is entering a historically bullish month, according to data from Schaeffer’s Senior Quantitative Analyst Rocky White. Over the past 10 years, FDN has emerged as the top exchange-traded fund (ETF) performer during the month of February, with 90% positive returns and an average return of 3.24%,” according to Schaeffer’s Investment Research.
FDN holds 41 stocks with Amazon.com Inc. (NASDAQ: AMZN), Facebook Inc. (NASDAQ: FB), Netflix, Inc. (NASDAQ: NFLX) and Alphabet Inc. (NASDAQ: GOOG) combining for over a third of the fund’s weight.
Near-Term Concerns
FDN is coming off one of its best months since debuting in mid-2006, stoking concerns that that rally may be a case of too much too fast.
“However, after a January that saw FDN rally 13.42% — good enough for its fourth-largest monthly gain of the last decade — and a three-year streak of extraordinarily mild monthly February moves in the range of 1% apiece, it’s fair to ask whether the internet-stacked fund (which counts Amazon, Facebook, Netflix, Salesforce, Google, and PayPal as its top holdings) has enough rally fuel in the tank to manage a decent rally by month’s end,” according to Schaeffer’s.
Some technical indicators could provide clues regarding FDN’s ability to live up to its February reputation and build on its impressive January showing.
“Consider that perhaps some of these fleeing traders are technicians keying on FDN’s 200-day moving average, which is currently in position to exert pressure on the shares. This benchmark trendline marked the Oct. 8 low, but was breached — and then emerged as resistance on a re-test — very shortly thereafter. The 200-day moving average is currently at $132.40, in the same price zone that marked the ETF’s intraday high in March 2018, as well as a 10% correction from that July closing high,” notes Schaeffer’s.
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