Investors' fear of rate hike was calmed by the Fed's keeping its easy money policy and even lowering the rate outlook by the end of the year after its policy meeting. Major indices shed three week's of loss and moved up strongly with NASDAQ composite index broke the 5000 level and reached an all time high in 15 years. For the week, S&P 500 index closed at 2108, up 2.66%, Dow Jones Industrial Average gained 2.13%, and Nasdaq composite index increased 3.17%.
The strong up trend in stocks can be seen from the weekly chart of S&P 500 index. After touching its 28 week moving average support level last week, the index bounced right back to continue the up-trend. The up trend is expected to continue with higher volatility as investors are still nervous about rate hike this year.
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Weekly chart of S&P 500 index |
The biotech stocks have been particularly strong since late last year due to merger activities and new drug testing results. In SELECT model portfolio, the Select biotech fund, FBIOX, has been held for five months with a gain of 50% so far. However, in the weekly chart below, FBIOX looks overextended in the past few weeks. Currently, the index is 23% above its 28 week moving average, about the same level as it had experienced in March, 2014. During that time, FBIOX had a 25% correction and fell back to its moving average support after the sharp rise. We do not know what will happen this time around but caution is warranted as exponential rise followed by a deep correction back to the 28 week moving average is commonly seen.
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| Weekly chart of FBIOX |
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