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Nasdaq Eases, Dow Up; Will Apple Have Gusto To Form A New Base?

Major indexes ended mixed on Monday, and the Nasdaq composite kept losses small. Apple (AAPL), down roughly 0.3% at 145.82 in dull trading, is hinting that it's now possibly forming a new shallow base.

X The Nasdaq tech leader recently topped at 156.65 on May 15, then posted two IBD sell signals when it slumped below its 50-day and 10-week moving averages in heavy volume two weeks ago. However, even after Monday's mild drop to 145.82, the mega-cap tech is hovering relatively near its 10-week moving average, an indication that the institutional crowd isn't bailing out of the consumer tech innovator in droves.

The maximum decline from a high of156.65 to a near-term low of 142.20 is less than 10%. This means that further sideways price action could set up a new base such as the flat base pattern. A further decline, however, would likely mean that the stock is headed toward a longer consolidation of its hefty gains since Apple's Jan. 6-9 breakout from a first-stage cup with handle at 118.12.

The Nasdaq composite, rising nearly 1.9% last week, gave back just 0.3%, while the S&P 500 and the Dow Jones industrial average logged gains of less than 0.1%. Volume fell slightly on the Nasdaq and rose modestly on the NYSE, according to early data.

The S&P SmallCap 600 led the major benchmarks by a trace, up less than 0.2%. It was up as much as 0.5% in the stock market today.

Breadth was positive on both exchanges, with winners beating losers by more than 2-to-1 on the NYSE, and nearly 4-to-3 on the Nasdaq. As seen in the large daily charts PDF that is linked to IBD's Big Picture column, the NYSE advance-decline popped higher late last week and is close to reaching new high ground, a good sign for market bulls.

Going back to Apple (81 Composite Rating, 86 RS Rating as seen in IBD Stock Checkup), there have been no significant changes to the iPhone maker's fundamental outlook. Earnings in the June-ended fiscal third quarter are seen rising 11% to $1.57 a share on a 6% bump in sales to $44.88 billion.

That appears to signal a true turnaround is in place; in the year ago quarter, earnings slumped 23% on a year-over-year basis. But in Q2 (ended in March), Apple posted an 11% gain in profit to $2.10 a share, its best increase in six quarters.

Elsewhere, numerous leading stocks, including those in the IBD 50, are facing critical tests of the 50-day moving average.

Lam Research (LRCX), ranked No. 5 in the IBD 50, backed off an intraday high of 153.61 and fell 1.8% to 148.99  in slightly above-average turnover. The last time the expert in semiconductor etching equipment touched its 50-day moving average came in early December.

Applied Optoelectronics (AAOI) cratered 6.5% to 61.59 in stout volume and is poised to test its 50-day line for the second time in nearly three weeks. The laser component and module supplier for fiber-optic networks has made a huge gain since it broke out past a 27.38 buy point on Jan. 12 in monster trade.

NetEase (NTES) reversed wildly, hitting a new high of 337.55 before dropping almost 4% to 320.70. Volume ended slightly above average. The stock is still up more than 6% past a 301.92 cup-with-handle buy point.

Among new IPOs, Canada Goose (GOOS) dropped as much as 6.8% intraday on news of a secondary offering but trimmed losses by the close, down nearly 3% to 21.31. Still, the retail play staged its first gap down in price since debuting on the NYSE on March 16 at 12.75 a share. Shares still hold a 15% gain from an IPO-base breakout at 18.50.

The high-end winter wear and outerwear firm shows choppy numbers, due in part to the seasonality of its merchandise. However, revenue has grown sharply in six of the seven past quarters (+65%, +74%, +123%, -34%, +17%, +81% and +22%).

Canada Goose plans to sell 12.5 million subordinate voting shares that are owned by Bain Capital and members of senior management. CIBC, Goldman Sachs, Credit Suisse and RBC Capital Markets will underwrite the offering. The company has 106 million diluted shares outstanding.

Canada Goose also sports a strong 93 RS Rating and an A+ for Accumulation/Distribution by IBD Stock Checkup.


IBD's TAKE: Read this article from Investor's Corner to weigh all the pros and cons of investing in IPOs. Before committing capital to a brand new publicly traded company, get a firm handle on the strength of its profits and sales as well as profit margins and ROE. Some new IPOs will flop soon after their market debuts.


In economic news Monday, U.S. durable goods orders dropped 1.1% in May vs. the prior month, well below the Econoday forecast for a 0.4% fall. Excluding transportation, orders inched up 0.1%, also missing the consensus view.

On Tuesday, investors will track the Richmond Federal Reserve manufacturing survey as well as the latest changes in the Case Shiller home prices indexes. The final Q1 U.S. GDP report comes out on Thursday.

Jason Pride, director of investment strategy at the money manager Glenmede, wrote that the recent weakness of growth "is transitory in nature, and may even simply be a seasonal adjustment error, as Q1 GDP has been weak every one of the past nine years."

"As with previous years, expect Q2 GDP to recover back to near 3.0% growth," Pride added.

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