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Stocks Down, But Apple Thrives; Will GE Exit The Dow Industrials?

Stocks slumped in late-afternoon trading Monday, but the declines among the major indexes remain mild. Apple (AAPL) bucked the drop with a 2.2% lift to 166.72 and new all-time highs.

Apple has now gained 41% after a Jan. 6-9 breakout from a first-stage cup with handle at 118.12.

The iPhone giant, which reportedly is seeing brisk orders for its most expensive iPhone ever (the X), is also following through on Friday's breakout from a brand-new cup with handle that shows a 160.97 proper entry.

General Electric (GE), meanwhile, led the Dow Jones industrial average to a 0.3% decline as the firm that goes back to the days of Thomas Edison lopped off another 38 cents, or 1.8%, to 20.41. That marked GE's sixth straight loss.

The S&P 500 also slipped 0.3% despite strength across the oil patch. WTI near-term futures edged 0.4% higher to $54.13 a barrel on the Nymex. The Nasdaq composite was down slightly.

Institutions were selling GE shares hard. The stock's volume finished at 95.8 million shares, 64% heavier than usual. The megacap firm's average daily turnover over the past 50 sessions is 58.2 million shares.

GE slid nearly 13% in monster weekly volume last week.

The Dow Jones industrial average is a price-weighted index of 30 names, and the keepers of the average replace lagging companies with higher-priced better performers. Recent new entrants include not just Apple but also Goldman Sachs (GS) and UnitedHealth Group (UNH). All three trade at more than 100 a share.

Cisco Systems (CSCO) and Pfizer (PFE) have the next-lowest share prices within the Dow 30, trading near 34 and 35.08, respectively.

Cisco, a giant in computer networking and internet-based telecom gear, is challenging institutional buying support near a 34.20 buy point in a new cup with handle. The stock fell more than 1% to 34 in dull turnover.

GE's Peak

Apple replaced dividend-rich AT&T (T) in March 2015, when the latter traded near 33 a share. AT&T, which has been featured in IBD's Dividend Leaders screen, has made virtually no progress since then.

GE had recently peaked at 33 in the summer of 2016 and now stands nearly 39% below that high. The stock's all-time peak is 60.50 back in August 2000.

GE's Relative Price Strength Rating is a horrifying 7 on a scale of 1 to 99, as noted in IBD Stock Checkup. Certainly, pressure is mounting on GE's new management team, led by John Flannery, to reinvigorate growth. Flannery has served in many top posts at GE, including head of GE Capital and the India operations.

The company's adjusted third-quarter earnings fell 4% to 26 cents a share, sharply missing Wall Street's view, according to data from William O'Neil + Co.

Q3 revenue increased 14% to $33.47 billion, snapping a three-quarter slump. But GE has not seen a double-digit annual gain on the top line for more than nine years. The best result was a 6% rise in revenue to $182.5 billion back in 2008.

Helping the Nasdaq's cause was Broadcom (AVGO), rising 8.33, or more than 3% to 261.23 in strong turnover. The chip designer for auto, telecom, data center and other markets has cleared a 259.46 buy point in a new nine-week flat base.

The proper buy zone goes up 5% past that 259.46 buy point, or 272.43.

Broadcom appears in IBD's real-time Stocks On The Move table, a great source for watchlist ideas and potential new breakouts. The table shows stocks moving sharply up or down in heavy volume, based on a real-time analysis of price-and-volume data, and can be seen on the home page.

Apple's Turnaround

Back to Apple, 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 24% to $11.16 a share.

Another positive for Apple shareholders: a respectable annualized dividend yield of 1.5%, with plenty of potential for  further increases in that cash payout. Apple tends to raise its dividend in the spring. But William O'Neil + Co. calculates that the company has a long-term annual dividend growth rate of 24% in recent years.


IBD'S TAKE: The current yield of the S&P 500 is 1.87%. Track the yield and other vital market indicators by going to the special General Market Indicators page, available as a PDF link at Market Trend on Investors.com. The yield is posted on the top bar of the large daily chart of the S&P 500.


Apple's SmartSelect Ratings have improved steadily throughout the year.

On Jan. 1, the Composite Rating was dismal at 51 on a scale of 1 to 99, according to IBD Stock Checkup. The RS Rating, which compares a stock's 12-month price performance with all other companies in IBD's database, was equally dim at 59.

But today, those two scores are now at 74 and 83, respectively. Expect the Composite Rating to be somewhat weaker when a stock such as Apple is undergoing a major turnaround in both fundamentals and in stock-price action.

Elsewhere among the Dow Jones 30 components, Johnson & Johnson (JNJ) is making what appears to be a normal-looking pullback after breaking out of a flat base at 137.18 on Oct. 17. The diversified medical and personal-care products titan has so far rallied as much as 5.2% from that proper entry, getting briefly extended from the correct buy point.

J&J has posted single- to mild double-digit EPS gains for eight quarters in a row. The Street sees Q4 earnings rising 9% to $1.72 a share.

The market reacted a tad negatively on reports that Congress is considering a phase-in pace toward lower corporate taxes. It's not the first time such a plan has been reported in the media. In any case, the market appears to be unwilling so far to give up much of its strong gains over the past five weeks.

One big reason: U.S. GDP rose 3% in Q3 on an annualized basis, despite the enormous damage caused by hurricanes in Texas, Florida and Puerto Rico. That follows a 3.1% gain in Q2.

While the Q3 GDP figure is bound to change in future data revisions, Eric Winograd, senior U.S. economist at AllianceBernstein, notes that investors should focus on the recent monthly data that point to an "economy balanced among sectors."

"Each of personal consumption, private investment and net exports made a positive contribution to the headline rise, with the increase in private investment particularly noteworthy; it rose 4.2% year over year, the highest in two years," Winograd told IBD. "We may not yet be back to pre-crisis levels of investment, but the news on that front is good."

Winograd also says consumption data point to an accelerating expansion in the U.S. economy.

"I think of final sales to domestic purchasers, one of the subcategories of GDP, as essentially a 'core' measure — the single figure that best captures the underlying dynamics of the economy. With the (household) paycheck growing at about 4% YOY, the 4.1% YOY gain in final sales makes perfect sense," he added.

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