Alphabet Rebounds, In Buy Zone; Will This Big Cap Tech Also Break Out? – Investor's Business Daily

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Alphabet (GOOGL) got a much-needed boost following a five-day slide that ended on Monday as the major indexes showed mostly flat action in afternoon trading Wednesday. The Nasdaq edged 0.2% higher.

X The Google search engine giant rose more than 1.2% to 1,032.36, getting buying support near the key 50-day moving average and holding above a recent 1,006.29 buy point in an 11-week flat base.

The 5% buy zone goes up to 1,056.60.

The Nasdaq composite is trying to halt a three-day slide; at 6775, it stands less than 2% off the 6914 all-time peak set on Nov. 28. The S&P 500, up around 0.1%, is hovering less than 2% below its 2665 peak. Volume is running lower vs. the same time Tuesday on both main exchanges. The Dow Jones industrials was up almost 0.1%, while small caps fell. The S&P SmallCap 600 was down 0.2% after falling as much as 0.5%.

At least four members of the 30-stock Dow Jones industrial average gained 1 point or more, including Microsoft (MSFT) and Visa (V). Both megacaps are market leaders in 2017, rising 33% and 41% since Jan. 1, respectively. Microsoft has also formed a new flat base since peaking at 86.20.

Notice on a weekly chart how Microsoft, which has successfully ventured into new industries outside its flagship operating software, is finding support at the 10-week moving average, a bullish sign.

Microsoft has gotten back on track in revenue growth, with the top line rising 1%, 8%, 13% and 12% vs. year-ago levels in the past four quarters. Profit dipped 5% to 84 cents a share in the September-ended fiscal first quarter but is expected to rebound 5% in Q2. Full-year profit is seen edging 1% to lower to $3.39 a share in FY 2018 (ending in June), then accelerate 12% higher to $3.78 in FY 2019.

Microsoft has a 2.1% annualized dividend yield, better than the S&P 500 at 1.8%.

Going back to Alphabet, the holding company is investing in new areas such as self-driving cars and artificial intelligence. But it still gets the lion’s share of its revenue and profits from ads. The strong trends seen in U.S. jobs, consumer confidence and manufacturing all seem to improve the 2004 IPO’s prospects for further growth.

Analysts surveyed by Thomson Reuters see Alphabet’s earnings lifting 32% to $9.99 a share in the fourth quarter. That would follow a solid string of quarterly growth, with earnings up 42%, 27%, 7%, 28%, 27% and 32% vs. year-ago levels in the prior six quarters.

Revenue is expected to jump 22% in Q4 to $31.85 billion, following top-line gains of 21%, 20%, 22%, 22%, 21% and 24%.

According to IBD Stock Checkup, Alphabet’s Accumulation/Distribution Rating is a low D+ on a scale of A (high accumulation) to E (heavy selling). Watch to see if this rating rises in coming weeks. The proprietary gauge analyzes price-and-volume activity in a stock over the past 13 weeks.

Alphabet’s Composite Rating is excellent at 96. The stock has a $717 billion market cap and 694 million shares outstanding across all share classes. The float is 295 million for Alphabet’s class A shares.

Retailing shares continue to shine. In Tuesday’s screened new highs list, the retail sector shared the top position with Banks, each with 13 stocks hitting all-time or 52-week highs. Luxury interior goods firm RH (RH), formerly called Restoration Hardware, is now showing leadership, rising more than 2% to 106.44 and has stretched its gain from a cup with handle and a 75.03 buy point to more than 41%.

The Street sees outstanding profit growth ahead for RH with earnings rising 133% to $2.93 a share in fiscal year 2018 ending in January and up 65% to $4.83 in FY 2019.

RH’s Composite Rating has rebounded nicely in recent months to a respectable 93.

Elsewhere, another consumer spending play and the largest company on the Nasdaq in market cap is reversing nicely off intraday lows. Apple (AAPL) was practically flat at 169.58 and is still slightly extended from a new 160.97 buy point in a second-stage cup with handle.

Apple broke out of a bottoming base and first-stage cup with handle at 118.12 on Jan. 6-9.

As noted in an earlier Stock Market Today column, Tuesday’s vote in the Senate Banking Committee to reduce some of the Dodd Frank financial industry regulations may be helping to support the recent advance in bank and brokerage stocks.

Crude oil futures slumped, sending energy stocks lower. WTI near-term futures dropped 2.3% to $56.29 a barrel. Six of the seven worst industry groups on Wednesday hail from the oil and gas industry, including drilling, U.S., international and Canadian exploration and production, and oil and gas equipment.

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