Small-cap stocks thrived on Friday, yet the market as a whole acted the way it usually does right before Christmas. It made harmless moves, as most senior equity traders have already taken off for the three-day holiday weekend.
The Russell 2000 gained 0.6% en route to a mild weekly gain, cutting away some of the prior week's 1.7% sell-off. Among the major indexes, the Nasdaq composite was next best, rising 0.3%.
Yet some funds and professionals acted like busy Santa elves in accumulating more shares in one of the top growth vehicles of 2016, sending Nvidia (NVDA) up another 2.5% to 109.78, good enough for a ninth straight up day and new highs.
The top chip play has now gained more than 230% from a mid-March breakout from a second-stage cup with handle at 33.17.
Meanwhile, Dow 30 component Apple (AAPL) also acted in a positive manner. The megacap tech bounced off a mild intraday low of 115.59 to close a bit higher at 116.52.
The question for market observers now is this: Will the market show enough strength for new breakouts by Apple and others? Or, will Apple pull back to shake out the last uncommitted holders who have been sitting on paper losses and eager to bail out?
That, in essence, is the psychology behind the building of a cup with handle. Remember that a handle should reflect a shakeout, and thus you'll see a downward slant along the lows as a handle forms. With narrow handles, check the slope on a daily chart. The minimum length of a handle on either a cup, double bottom or saucer is five trading sessions, or a week, on a weekly chart.
Nvidia represents the future of computing, and the roles of semiconductors to make machines and devices connected to the internet, and enhance people's lives and the workplace.
The Santa Clara, Calif., firm also currently boasts superior IBD Ratings, including a 99 Composite at IBD Stock Checkup on a scale of 1 to 99; a 96 EPS Rating; a 99 RS; and a top-flight A for SMR (Sales + Profit Margins + Return on equity).
Are there other large-cap companies that more or less match Nvidia's solid ratings? Yes.
IBD screened for stocks that have a minimum 98 Composite Rating; a $25 billion market cap or higher; average daily volume of at least 500,000 shares; a full-year EPS growth estimate of 15% or higher; and trading no more than 15% below a 52-week high.
In addition to Nvidia, three names show up: Applied Materials (AMAT) (FY 2017 earnings are seen jumping 37% to $2.40 a share), Broadcom (AVGO) (FY 2017 EPS estimate up 20% to $14.09), and Charles Schwab (SCHW) (FY 2016 EPS estimate up 29% to $1.30, FY 2017 up 22% to $1.58).
The former two are noted in IBD Leaderboard, with Applied as a watchlist candidate. Schwab ranks No. 24 in the IBD 50.
Applied Materials, which may get a boost by the emergence of actuator chips, and Broadcom have fiscal years ending in October. Actuators turn digital signals into physical motion, light, and other forms of "analog" activity.
Pretax margin at Schwab has surpassed 30% in 2013, 2014 and 2015, up from the high-20s in FY 2010 to FY 2012.
Higher interest rates are likely to boost Schwab's income from investments and margin loans. The Federal Reserve on Dec. 14 raised the fed funds rate for only the second time in a year.
Nvidia has a market cap of $59 billion, vs. $175 billion for fellow semiconductor giants Intel (INTC) and $98 billion for Qualcomm (QCOM).
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