Stocks Up; Will Defense Stocks Crush The Market In 2018? | Stock News & Stock Market Analysis

Friday proved to be an unusual session as growth-style stocks and income-type utilities rallied nearly in lockstep amid a broad late-afternoon advance in the stock market today.

XMeanwhile, members of the aerospace and defense industry group continue to have a hot start in 2018. IBD’s Aerospace/Defense industry group has vaulted 6.7% year to date, vs. a less than 2% gain for the S&P 500, amid news reported by IBD that the Air Force is rushing to build a next-generation fighter jet.

Lockheed Martin (LMT), which found nice support at the rising 50-day moving average during the fast slide in stocks in early February, gained 0.5% to 357.34. That extends the military jet and warfare systems giant’s advance from a breakout past an eight-week flat base at 322.29 to nearly 11%.

Lockheed pays a quarterly cash dividend of $2 per share, giving the stock an annualized yield of 2.3%. That’s better than the 1.7% yield for the S&P 500.

Meanwhile, at least 10 additional companies in the same industry group hold a Composite Rating of 90 or higher on a scale of 1 to 99, including Teledyne Tech (TDY), Heico (HEI), Curtiss-Wright (CW), Rockwell Collins (COL), Spirit Aerosystems (SPR), Huntington Ingalls (HII), General Dynamics (GD) and KLX (KLXI).

You can compare all of the IBD Ratings of each of these stocks with peers in the same industry group by using Stock Checkup to speed your fundamental analysis. Focus on those with rising relative strength lines, which are painted in blue in all IBD charts. A fast-rising RS line means a stock is sharply outperforming the S&P 500.

At 3 p.m. ET, the Dow utility average shot more than 2.2% higher, beating gains of 1.3% to 1.5% 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 group is 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, investors bought back long-term bonds. The yield on the benchmark U.S. Treasury 10-year bond edged down to 2.88%. Earlier in the week, the yield hit as high as 2.95%, creeping closer to the January 2014 peak of 3.04%, a key psychological level for institutional investors.

Going back to the military supplier group, Huntington Ingalls recently broke out of a three-month flat base with a 253.54 buy point. The 5% buy zone goes up to 266.22.

Notice on the submarine and Navy class destroyer builder’s daily chart that Huntington’s relative strength line has ascended into new high ground, a bullish sign.

KLX is finding buying support at the 50-day moving average for the second time since its breakout from a cup-shaped base at 54.50 on Oct. 3.

The first and second pullbacks to the 50-day or 10-week line can offer a timely entry to establish a new position in a leading stock or to add a small amount of shares to a winning core position.

Among the FAANG stocks, 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. The stock is also up more than 2.5% for the week.

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.

In other markets, the persistent rise in crude oil seems to confirm the recent weakness in the U.S. dollar as well as optimism over the global economy, not just OPEC’s continued willingness to limit its production.

WTI near-term futures rose 1.3% to $63.58 a barrel, marking a three-week high. The year-to-date high for WTI is $66.14, last seen in late January. WTI prices have not touched the $70 level since late November of 2014.

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(Please follow Saito-Chung on Twitter at @IBD_DChung for more commentary on financial markets and top stocks.)


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Originally posted 2019-09-19 23:09:59.


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