SNOW - FDN: Buy High-Quality And Strong-Momentum Internet Stocks (Technical Analysis)

2024-01-02 09:27:16 ET

Summary

• FDN has performed well during the stock market rally and is rated as a buy by Seeking Alpha Quant.
• FDN is an exchange-traded fund that tracks the performance of the Dow Jones Internet Composite Index.
• FDN has strong momentum, outperforming the technology sector.

Summary

Seeking Alpha Quant rates FDN as a buy; FDN has performed very well during this stock market rally. I agree with the Seeking Alpha Quant and rate FDN as a buy.

FDN First Trust Dow Jones Internet Index Fund ETF

First Trust Dow Jones Internet Index Fund is an exchange traded fund launched and managed by First Trust Advisors LP. The fund seeks to track the performance of the Dow Jones Internet Composite Index, by using full replication technique. First Trust Exchange-Traded Fund - First Trust Dow Jones Internet Index Fund was formed on June 19, 2006.

Fund Details

Fund Type Sector Equity

Issuer First Trust Advisors L.P.

Inception 06/19/2006

Expense Ratio 0.52%

AUM $5.96B

Top 10 Holdings

Amazon.com Inc (AMZN) 9.32%

Meta Platforms Inc Class A (META:CA) 7.74%

Alphabet Inc Class A (GOOG) 5.31%

Salesforce Inc (CRM) 5.05%

Netflix Inc (NFLX) 4.73%

Cisco Systems Inc (CSCO) 4.53%

Alphabet Inc Class C (GOOG:CA) 4.50%

PayPal Holdings Inc (PYPL) 3.11%

Snowflake Inc - Class A (SNOW)3.12%

Arista Networks Inc (ANET) 3.00%

Total 50.41%

# of Holdings 43

*Holdings as of 2023-12-27

Investment Thesis

I rate FDN as a BUY.

There are a number of factors that support the thesis.

On the fundamental side, the recent decrease in inflation supports the market expectation of the Fed starting to cut interest rates in 2024. Lower interest rates will lead to improved earnings, therefore better business environment for internet companies.

On the technical side, FDN has been in a long-term uptrend for over one year, since November 2022. It also has been one of the strongest performers during the latest market rally, over the past two months.

Analysis

Currently, FDN's price is above its 50 and 200-days moving averages. The 200-day MA is sloping upwards since March 2023.

FDN has stronger momentum than the technology ETF QQQ. Returns from 10/27/2023 to 12/29/2023: FDN (25.20%), QQQ (18.89%)

The top 10 holdings of FDN represent over 50% of total assets. The top 4 holdings have strong buy ratings by the Seeking Alpha Quant: META (4.98), GOOGL (4.94), CRM (4.90).

Market State

To determine the state of the market we compute the difference in total returns of the following four ETF pairs: (DBB, UUP), (XLI, XLU), (SLV, GLD) and (XLC, XLV) over an evaluation period. The evaluation period is variable. It is a function of market volatility.

Currently the evaluation period is 78 trading days and three of the four pairs indicate risk-on. Only one pair (SLV, GLD) indicate risk-off.

Additionally, I watch the behavior of the market implied volatility. Lately, VIX declined to levels not seen since before the COVID crash.

The market state is supportive of a continuation of the rally. The underlying index and most stocks in its composition are in an uptrend. The prevailing market expectations are for the FED to stop raising interest rates and start cutting rates by the summer of 2024. Declining interest rates are very beneficial for internet and technology stocks.

Risks

The current market rally may stumble for many reasons. Most notable, the stock valuations are overextended and may need a break. It is likely that a small correction or a short period of consolidation will happen before the next breakout rally.

Conclusion

I rate FDN as a BUY for the following reasons:

Most stocks in its underlying index are profitable. FDN has a strong momentum and is outperforming the technology sector during the current rally. Seeking Alpha Quant has a high BUY rating of FDN (4.30/5).

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