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Stocks Up, Home Depot Surges; 4 Reasons Why Apple Rally Has Room To Run

Major indexes edged higher at midday Monday, the start of a holiday-shortened week that currently see the market in a confirmed uptrend.

Apple (AAPL) backtracked in light volume, and another light-volume drop could put shares back in buy range. Last month, Apple cleared a brand-new cup with handle, moving past a 160.97 entry. The 5% chase zone extends up to 169.02.

X Other key megacap and big-cap techs to keep watching with less than two months to go in 2017 include Applied Materials (AMAT), Lam Research (LRCX), Adobe Systems (ADBE), Square (SQ) and Nvidia (NVDA). All five of these names rank in the latest IBD Big Cap 20.

All five of these names are currently extended from a proper buy point. However, given their excellent fundamentals, superior position within their respective markets, and outstanding relative price strength, they certainly deserve a spot on a long-term watch list. New follow-on entry points or new bases will eventually emerge.

At 1 pm ET, the Nasdaq composite rose less than 0.1%, while the S&P 500 rose close to 0.2%. Most Chinese ADRs flexed strength, following a third straight advance for the Hang Seng equities benchmark in Hong Kong. Volume is running sharply lower vs. the same time on Friday, which saw turnover boosted by expiring monthly and weekly stock and index options.

The Dow Jones industrial average rallied nearly 0.4%, buoyed by 1-point gains or more by at least five of the 30 components, including Home Depot (HD), 3M (MMM), Caterpillar (CAT) and IBM (IBM).

Investors received additional confirmation that the U.S. economy is rising. The leading indicators index showed a 1.2% gain in October, blasting the Econoday consensus view of up 0.6% and a big improvement from a 0.2% drop in September.

Home Depot barreled more than 1.5% higher to 170.49, good for a new all-time high. The stock marked a follow-on entry point as it bounced off the rising 10-week moving average near 165 last week in hefty volume.

Those who bought shares when the stock cleared earlier buy points may add a small amount of shares to the winning position. Adding shares to your best stocks is a great way to compound your overall return, but it should only be done when the market is in a solid uptrend, as noted in the Market Pulse table of IBD's The Big Picture.

The Street sees the home improvement chain's earnings rising 12% to $1.62 a share in the fiscal fourth quarter ending in January. That would extend Home Depot's streak of double-digit profit growth to 16 quarters in a row.

No wonder Home Depot's EPS Rating, as seen in IBD Stock Checkup, is a very respectable 92 on scale of 1 (atrocious earnings) to 99 (exceptional profit growth, both near and long term).

Back to Apple, the stock provides multiple reasons why the outlook for a continued fundamentals turnaround remains very strong.

Earnings per share jumped 24% to $2.07 in the September-ended fiscal fourth quarter, and Apple crushed the consensus view by nearly 11%. But perhaps more importantly, the iPhone marketer is poised to continue growing profit at double-digit pace into the next fiscal year.

The Street sees fiscal Q1 earnings (for the quarter ending in December, a big-time shopping month) rising 12% to $3.77 a share; that would also be a quarterly best.

A second reason to have confidence in Apple's turnaround? Revenue growth is accelerating. In the latest quarter, revenue jumped 12% to $52.58 billion, the biggest year-over-year gain in nearly three years. Analysts on consensus see sales picking up 10%, 30%, 25% and 17% vs. year-ago levels in the next four quarters.

Three, Apple's ratings in IBD Stock Checkup continue to stay solid and show dramatic improvement vs. the start of the year. While the Composite Rating dipped just a bit to 89, it's still up strong from a lowly 51 on Jan. 1. The RS Rating continues to reflect leadership among big caps at 83.

Four, the daily and weekly chart action for Apple has not shed any sell signals, other than to take profits at 20% to 25% for those who wish to raise some cash and look for perhaps a better growth name. Apple has jumped nearly 50% since clearing a first-stage bottoming base pattern at 118.12 on Jan. 6-9. Meanwhile, the B- Accumulation/Distribution Rating, on a scale of A to E, indicates mutual funds, banks, hedge funds and insurers are overall net accumulators of Apple shares.


IBD's TAKE: Taking many gains when your stock has risen 20% to 25% past a proper buy point is an excellent way to build a strong overall return. Not only are you locking in gains in a stock on the way up, but you are also freeing up cash to possibly put into another top market leader. Read more about this offense-type sell signal in this Investor's Corner story.


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