Skeptics Still Aren't Buying FANG Fund Rally

Traders must watch FDN's progress around its 200-day trendline over the next few sessions

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%.

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.

First, it's worth pointing out that FDN's big January bounce was accompanied by net outflows in the amount of $66.23 million, per etf.com. As context, during the July 25-Dec. 24 period during which FDN experienced a 27%-plus haircut from its closing high of $147.65 to its closing low of $107.21, the fund bled about $653.52 million in net outflows. So while the pace of the stampede out of this sector slowed in January to a leisurely jog, there were still some investors taking advantage of last month's rebound as a selling opportunity.

And second, 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.

While FDN has recently toppled key levels in the form of its 80-day and 126-day (half-year) moving averages (per the accompanying chart), bulls will likely want to see a few consecutive closes above the 200-day before feeling confident that the V-rally from the late-2018 lows is for real. As of Friday's close, FDN was at $132.48, just a handful of pennies above its 200-day moving average -- so the next couple of days will be "must-see" FDN closes for followers of the FANG fund.

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, February 3.