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Qualys Breaks Out As Nasdaq Leads Rally; Tesla Shares Haven't Done This In Months

The Nasdaq composite, helped by another solid rally by Tesla shares, gained nearly 0.2% to outmatch smaller gains by other key indexes in stocks today. The Dow Jones industrial average and the S&P 500 edged roughly 0.1% higher Monday.

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The Russell 2000 gained nearly 0.2%. The S&P SmallCap 600 rose more than 0.2%. At 1041, the index has now gained 11.2% since Jan. 1.

The day's top industry groups, as seen in IBD's daily analysis of 197 industry groups and subgroups, included automakers, home furnishings retail, consumer electronics retail, radio and TV, oil and gas transport, integrated computer systems, and airlines. All of these groups gained 1.7% or more.  Dairy, semiconductor equipment, superregional bank, electric utility, solar and West and Southwest banks dropped 1% or more.

Randy Watts, CIO of William O'Neil + Co., noted in an interview with Reuters TV that one reason why small caps are outperforming is bigger profit growth forecasts this year and next.

While Wall Street expects smaller companies, as measured by the S&P SmallCap 600, to deliver earnings increases of 20% and 14% in 2018 and 2019, S&P 500 firms may increase their profits by 18% and 10% in the same time frame.

Tesla Shares Shift Into Higher Gear

Tesla (TSLA), coming off last week's third straight weekly advance, drove 4% higher to 332.

That price is significant, too. Why? If it closes at that level or higher, it would mark the first time for this former big market winner to finish above the long-term 200-day moving average since March 13.

Excellent stocks, after a decent correction, might fall beneath the 200-day line. But at some point they cross back above it en route to the completion of a new base and a potential new entry point.

Confidence in CEO Elon Musk's goal to ramp up weekly production of the Model 3 sedan appears to be improving. Meanwhile, Wall Street sees second-quarter revenue rocketing 52% to $4.24 billion.

That would mark an acceleration in top-line growth from the 26% gain in Q1 to $3.41 billion. The company is still expected to post big net losses in 2018 (-$6.82 a share), but then return to the black with earnings of $2.46 a share in 2019.

In the week ended April 5, 2013, Tesla broke out of a perfect base-on-base structure at 40.10, then gained 627% over the next 17 months after posting strong earnings and revenue growth in the first quarter of 2013.

These Sectors Are Still Flying High

Consumer-spending and retail stocks are cementing their leadership role in the current quarter.

As seen in IBD's NYSE + Nasdaq stock research tables, which are arranged by top-ranking broad industry sectors first, sectors such as Apparel (No. 2), Consumer (No. 3), Retail (No. 6) and Leisure (No. 8) are all trouncing the S&P 500 with year-to-date gains of 12% to 18% each.

RH (RH), the luxury home furnishings brand, rallied 4.8% to 118.73 in the regular session. Then it screamed another 16% higher in extended hours trading following fiscal Q1 results. Although revenue fell 0.8% to $557 million and missed the $563 million consensus view, the Corte Madera, Calif.-based company posted adjusted earnings of $1.33 a share, blasting the $1.02 Thomson Reuters estimate. RH earned 5 cents a share in the year-ago quarter.

RH also showed a 750-basis-point leap in adjusted operating margin to 9.6%.

RH, still a small-cap play with a market value of $2.8 billion at the regular session close, cleared a 105.56 buy point in a long double-bottom base on June 5. Shares are now up 12% past that prime entry and are thus outside the 5% buy zone.

What Sold Off

In stocks today, interest-rate-sensitive names struggled ahead of a Federal Reserve meeting on interest rates that begins Tuesday. The Dow utility average fell nearly 1.1%. At 656, the index is now down 9.1% since Jan. 1.

WTI crude oil prices rallied 0.5%.

Meanwhile, Epam Systems (EPAM) also reaffirmed the broad strength of the software sector.

As seen in the Stock Of The Day story, the business software expert has shown excellent consistency in growing the top and bottom lines.

Epam's earnings grew 13%, 21%, 31% and 29% vs. year-ago levels in the past four quarters as revenue bumped up 23%, 27%, 27% and 31% vs. year-ago levels.

For these and other reasons, Epam shows a very fine Earnings Per Share Rating of 94 on a scale of 1 to 99 in IBD Stock Checkup. The stock's SMR Rating is a top-notch A.

A New Breakout

Qualys (QLYS), also in the software sector, cleared an 85.10 buy point in a nearly seven-week cup as shares gapped up at the open and rose 4.5% to 85.45. Volume doubled its 50-day average.

Some cup bases do not feature a handle.

Qualys, a security software play, is expected to continue to meet the C in IBD's CAN SLIM seven-point paradigm for growth stocks. C stands for "current profits," and a company's growth should be 25% or higher. Qualys has notched EPS increases of 30%, 41%, 39% and 80% in the past four quarters; analysts see Q2 earnings rising 31% to 34 cents a share.

The yield on the benchmark U.S. Treasury 10-year bond rose to 2.96% and is now up 7 basis points since June 1. The 3-month T-bill is now showing a 1.94% yield, up just 2 basis points over the same time frame.

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

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