Apple (AAPL) gained ground and was on the verge of climbing back above a 156.75 buy point as the iPhone giant helped bump the major indexes higher in afternoon trading Wednesday.
XAutoplay: On | OffApple had broken out of an 11-week flat base at 156.75 on Aug. 2 following a solid fiscal third quarter. (EPS rose 18% and revenue 7%, the biggest top-line increase in seven quarters.) The stock is now forming a new flat base with a 165.04 buy point.
At 2:30 p.m. EDT, the Nasdaq composite edged less than 0.1% higher but still held on to last week’s gain of more than 1.4%. The S&P 500 and Dow Jones industrial average were both up less than 0.1%.
Breadth remains positive in the equities market, with winners topping losers by a roughly 4-3 margin in the NYSE and by approximately 100 issues on the Nasdaq.
The Nasdaq 100 also rose 0.1%. The Russell 2000 was virtually flat, but the S&P SmallCap 600 was off nearly 0.3%. Volume is running mildly lower vs. the same time Tuesday on both main exchanges.
Apple had not gained a lot of ground, rising 5.2% after its Aug. 2 breakout at 156.75, before falling back to the proper entry and sinking below the 50-day moving average. While the rise back above the 156.75 is not an ideal entry right now, an investor with a big cushion in the iPhone maker could decide to add a small amount of shares to the existing position if the stock retakes the 50-day line in robust or increasing turnover.
Apple’s earnings had dropped 10% in the fiscal year ended in September 2016 on an 8% slump in revenue. However, Apple has been staging a classic turnaround in fundamentals lately. In the past three quarters, the iMac maker’s earnings rose 2%, 11% and 18% vs. year-ago levels, following a three-quarter slump. And in Q4 (ended in September), earnings are seen increasing 12% to $1.87 a share, which would mark a third quarter in a row of mild double-digit gains. It’s slated to report Q4 results on Nov. 2 after the market close.
For fiscal year 2019, the Street sees earnings accelerating 23% to $11.04 a share.
When Apple reports earnings this month, keep an eye out for a potential increase in either its dividend or stock-buyback plans. The current annualized yield is 1.6%, still trailing the S&P 500 (currently near 1.9%), but Apple’s payout growth rate is estimated at 24% annually.
On IBD Stock Checkup, Apple has seen its Composite Rating rise from 51 at the start of 2017 to 69. By itself, that’s not a great number, and growth investors will want to seek those companies with a minimum Composite grade of 95 or higher (on a scale of 1 to 99) in order to find the fastest movers among the market’s leadership. However, Apple’s Relative Price Strength Rating has improved to a decent 78, up from 59 on Jan. 1.
Apple has risen as much as 39% after breaking out of a first-stage cup with handle on Jan. 6-9 at 118.12. That cup with handle, which formed from October to early January, was part of a long bottoming-base pattern that typically forms among stocks that suffer a deep decline as fundamentals soften; then it bottoms out and gets prepared for a potential new stock run to 52-week highs.
Fellow Nasdaq component Alphabet (GOOGL), which has launched a major advertising campaign for its new smart speaker called Google Home Mini, rose more than 1% and breached the 1,000 level for the first time since July 24. That gain places the megacap internet search giant in a good position to potentially break out from a new flat base with a 1,006.29 buy point.
Alphabet’s earnings have risen 27%, 7%, 28%, and 27% vs. year-ago levels in the past four quarters. The Street expects Q3 profit to rise 15% to $8.32 a share.
Alphabet, whose market value of $694 billion trails only Apple ($808 billion) within the Nasdaq, is also seen growing the top line at an impressive clip: up 21% to $27.16 billion in the just-ended third quarter and up 20% in Q4 to $31.22 billion.
Elsewhere, Delta Air Lines (DAL) ramped up 1% to 53.26 in fast turnover and added more work to the right side of a new base. The Atlanta-based air transport giant reported a 6% rise in third-quarter revenue to $11.06 billion, matching the biggest increase in 12 quarters. Earnings slipped 8% to $1.57 a share but were still mildly above the consensus forecast.
Airlines were among the day’s best industry groups, joining steel, steel alloys, metal distributors, diversified medical and internet content firms.
In the IBD 50, Nvidia (NVDA) gained 1% to 190.84 and has now stretched its gain from a 174.66 buy point in a flat base to more than 9%.
The fast-growing maker of GPUs (graphics processing units) and chip sets for new industries, including deep learning and self-driving cars, is No. 9 in the IBD 50. Earnings in the October-ending fiscal third quarter are seen growing 13% to 94 cents a share, on top of an 89% leap in the year-ago quarter.
Nvidia is also making gains since its addition to IBD’s Swing Trader service.
In other financial markets, oil continued to rally. WTI near-term futures gained nearly 0.7% to $51.26 a barrel. The yield on the benchmark U.S. Treasury 10-year bond eased a bit to 2.34%, but is still up sharply from its Sept. 7 near-term low of 2.05%. Fed funds futures currently see a 90% chance that the Federal Reserve will boost short-term interest rates by a quarter point at its Dec. 12-13 meeting.
The Fed is slated to release minutes from its October meeting on interest rates at 2 p.m. EDT.
IBD’S TAKE: The IBD 50 has showcased companies that are the new powerhouses of the U.S. and global economy. Institutional investors seek to find firms with exceptional earnings and sales growth, an outstanding product or service, and the highest pretax margins and return on equity in their industries. As seen in a graph on Page B4 of the IBD Weekly, the price-weighted IBD 50 shows a total return of 750% from April 11, 2003 to Dec. 31, 2016 — equal to an average annual gain of 16.9%. The S&P 500 has risen 242% over the same period.
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