Nasdaq Extends Lead, Dow Jones Falls; Will These 4 Leaders Beat The S&P 500 In 2018? – Investor's Business Daily

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The Nasdaq brushed off a mid-morning dip and stretched into new session highs in early-afternoon trading with a 0.5% advance while the Dow industrials continued to struggled on Wall Street on Monday. Tech, leisure and internet companies advanced sharply. Small caps also outperformed.


 At 1 p.m. ET, the tech-centered composite gained 0.5% and hit new all-time highs, but the Dow Jones industrial average slipped from small gains into a nearly 0.4% drop.

The Nasdaq 100 rose nearly 0.7%, a strong hint that big cap techs were attracting institutional dollars. Business software, cloud computing, and video game hardware giant Microsoft (MSFT), a Dow Jones industrials stock, rose 0.5% to 96.99. The stock is up 13.3% since Jan. 1 and has rallied 70% following a late July 2016 breakout from a saucer-like base with a 56.87 buy point.

The S&P 500 was virtually breakeven. The S&P SmallCap 600 erased mild early losses and gained 0.4%.

Volume is now edging slightly higher vs. the same time Friday on the Nasdaq, indicating that institutional demand is not receding, even after the composite index surged 4.2% last week.

Among IBD’s 197 industry groups, ship transport, automaker, telecom, building-related products, data storage and oilfield services firms also rallied with gains of 1% or more. But shoe, auto parts, truck, construction machinery, movie, aerospace and wireless telecom service stocks fell 1% or more.

Just three of the 30 components within the Dow industrial average climbed 1 point or more, including IBM (IBM) (still deep within a base) and Goldman Sachs (GS) (trying to clear a 273.89 entry in a new flat base). Fellow Dow Jones 30 member Intel (INTC) struggled, losing 0.84, or 1.6%, to 51.35. Volume was running 12% above average.

Intel last week hopped out of a flawed cup base that formed in less than six weeks. Yet the chipmaking titan is having a positive 2018 so far, up more than 10%. The Santa Clara, Calif., tech bellwether has enjoyed healthy double-digit profit increases in five of the six past quarters, up 21%, 4%, 22%, 22%, 26% and 37% vs. year-ago levels.

The Street expects Intel to grow first-quarter profit by 8% to 71 cents a share.

Four components in the price-weighted Dow also sank 1 point or more, including Home Depot (HD), Caterpillar (CAT) and United Technologies (UTX).

Will These 4 Growth Stocks Smash The S&P 500 This Year?

Leading companies, in terms of fundamentals, relative price strength and quality fund sponsorship, include Alibaba (BABA) (basing), Broadcom (AVGO) (also in a base), Booking Holdings (BKNG) (up 7% from a breakout point at 2,068.09 and thus extended) and Ligand Pharmaceuticals (LGND) (slightly out of the 5% proper buy zone after clearing a flat base at 170.40).

Ligand was showcased in IBD’s Stock Spotlight column on March 6, two days before the stock broke out of its five-week flat base, one of the most important chart patterns that can help growth investors time their buys for maximum gains and minimum risk during a confirmed stock market uptrend.

On Friday, the IBD Big Picture column noted that the rise by the Nasdaq composite to all-time highs ended the “Uptrend under pressure” phase that began on March 1.

All four companies have a record of smashing the performance of the S&P 500 and other benchmarks. Only Broadcom, still in a quest to acquire fellow wireless chip technology giant Qualcomm (QCOM), is lagging the S&P 500 in year-to-date performance. Broadcom, however, gapped up more than 3% to 262.58 in fast turnover and is now up more than 1% year to date.

Broadcom, the product of a mega-merger with Singapore’s Avago Technologies, is up 554% since clearing a nearly 18-month base-on-base pattern with a 39.84 buy point in the week ended Sept. 20, 2013. The company has superior earnings growth, with profit rising 29%, 38%, 51%, 46%, 42% and 32% vs. year-ago levels in the past six quarters.

Revenue picked up 119%, 125%, 134%, 18%, 18%, and 17% in the same time frame. The merger between Broadcom and Avago accounted largely for the triple-digit top-line gains in prior quarters.

Analysts see earnings in the January-ended fiscal first quarter rising 39% to $5.03 a share on a 28% jump in sales to $5.32 billion.

As noted in IBD’s Earnings Calendar, Broadcom is slated to report Q1 results on Thursday.

Like the one formed recently by Ligand, a good flat base must form over a minimum five weeks and correct no greater than 10% to 15% from head to toe. Such action indicates tight price action and a general unwillingness among large fund managers to dump their shares.

Ligand has scored a ninth straight advance, rising more than 2% to 179.92 in volume running more than 100% above usual levels. Before the stock broke out, its relative strength line jumped into new high ground, a bullish sign.

The relative strength line, painted in blue in all IBD charts and in MarketSmith, compares a stock’s price performance with the S&P 500.

On Feb. 21, the specialist in developing treatments for numerous difficult and chronic diseases posted a 77% leap in fourth-quarter profit to $1.31 a share as revenue rose 32% to $50.5 million.

As noted in this IBD New America piece, Ligand earns royalties based on the therapies and technology platforms it sells to larger pharmaceutical and biotech firms. In February, management noted it currently has 165 platforms in development together with more than 95 business partners.

Ligand joined IBD Leaderboard last week.

Shares are up more than 30% since Jan. 1, while at 2786 the S&P 500 is up 4.2%. The Nasdaq composite is up nearly 10%.

Alibaba, one of China’s leading e-commerce firms, had a huge 2017 as shares rolled 96% higher that year, vs. a 19.4% lift by the S&P 500.

The stock sprinted higher in January, then caved in step with the market. However, notice how the stock refused to sink below its long-term 200-day moving average (visible as the black line on a MarketSmith chart). After a strong run-up, it’s not uncommon for leading stocks to not only sharply undercut the 50-day moving average but also test buying support at the 200-day line as well.

The 200-day moving average traces a stock’s average price close over the past 200 trading sessions, or roughly 10 months’ of price action. You want to see the 200-day line rising. Plus, a leading stock will lead its 50- and 200-day moving averages higher.

Alibaba has fallen a mild 18% in its current base, which so far has the makings of a cup base.

The latest pullback is not a proper handle. Why? The midpoint test shows that the handle didn’t form up high enough within the cup itself.

The midpoint of the cup (the base’s intraday high plus intraday low, divided by 2) is 187.54, while the midpoint of the handle is 185.30.

In a good cup with handle, the midpoint of the handle is usually higher than the base’s midpoint. A good cup with handle must also form within a minimum seven weeks.

Alibaba has scored EPS gains of 39%, 30%, 37%, 60%, 63% and 25% vs. year-ago levels in the past six quarters. Such results help boost the stock’s Earnings Per Share Rating to a 97 on a scale of 1 to 99 in IBD Stock Checkup, and the megacap member of IBD’s Retail-Internet industry group shows an equally robust 98 Composite Rating.

Analysts polled by Thomson Reuters see first-quarter earnings rising 49% to 94 cents a share.

One concern is that fourth-quarter aftertax margin fell by 970 basis points to 32.5% vs. the year-ago period. That broke a two-quarter string of rising net margins.

The Dow transportation average, a 17.3% gainer in 2017, fell nearly 0.6% before rebounding some and is now off 0.2%. At 10,712, it’s up almost 1% since Jan. 1.

In other financial markets, WTI crude oil futures fell 1.7% to $60.92 a barrel while gold, silver and copper futures backtracked 0.3% to 0.6%.

The yield on the benchmark U.S. Treasury 10-year bond edged lower to 2.88%, still up from 2.41% at the start of the year.

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


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