Traders torched stocks today amid a bonfire of selling (with respects to the passing of novelist Tom Wolfe) in the U.S. Treasury bond markets. But a small posse of leadership-quality companies bucked the broad Wall Street decline.
XThey included new IPO Altair Engineering (ALTR), Splunk (SPLK), Cree (CREE), Ligand Pharmaceuticals (LGND) and China Lodging (HTHT).
In stocks today, homebuilders finished as the worst performer among the 197 industry groups tracked by IBD, down 5%, as the yield on the benchmark U.S. Treasury 10-year bond hit 3.08%, marking a new six-year high.
D.R. Horton (DHI) tanked more than 6% to 40.58 and dropped sharply beneath its long-term 200-day moving average. The stock is now 23% beneath a 53.32 peak. LGI Homes (LGIH), which staged a vicious reversal last week despite posting robust Q1 results (EPS up 112% to $1.10, sales up 71% to $279 million), took out its 200-day line as shares fell 5.9% to 58.19.
LGI Homes' turnover jumped 149% above its 50-day moving average, a strong hint that fund managers sold anxiously.
"Rising mortgage rates are further squeezing affordability for would-be homebuyers that are already frustrated by limited inventory of available homes and higher home prices that have resulted," Bankrate.com chief financial analyst Greg McBride said.
On Tuesday, the Nasdaq composite and Dow Jones industrial average both slid 0.8%; at one point, both averages fell more than 1%. The S&P 500 sank 0.7%. Volume increased on both main exchanges, according to early data. The higher volume vs. Monday's action implies unusually intense professional selling.
As noted in IBD's The Big Picture column, such significant drops in heavier volume are called distribution. A bevy of strong distribution days can signal an end to a major market uptrend.
Despite the broad decline among large caps, the Russell 2000 inched less than 1 point higher. The small cap S&P 600 also rose less than 1 point; at 982, the 600 is up 4.9% since Jan. 1 while the S&P 500 is up 1.4%. The IBD current outlook for the market remains "Confirmed uptrend."
Meanwhile, Leaderboard member Apple (AAPL) staged a gap-down in price, but volume was well below the 50-day average. Given Apple's solid breakout last week, it's normal to see even top stocks pull back to or near the proper buy point.
A downward gap appears on a daily chart when the intraday high is below the intraday low of the prior trading session.
In Apple's case, Tuesday's intraday high of 187.07 is 79 cents below Monday's session low of 187.86. Not much of a gap.
On May 4, Apple broke out of a compact double bottom base pattern that supplied a 179.04 buy point. So far, the breakout has produced a gain of more than 6%.
At 186.26, the iPhone, iPad and digital services giant is now up 57% past a 118.12 buy point in a first-stage cup with handle, one of the most important chart patterns that top growth stocks produce before breaking out to new highs and big price runs. Apple cleared that base in the midst of its fundamental turnaround, on Jan. 6, 2017.
Fresh Breakout No. 1
Altair, a member of IBD's specialty enterprise software industry group, barreled more than 6% higher to 33.51 and narrowly eclipsed a 33.49 buy point in a seven-week cup without handle. The 17% decline within the base is bullishly mild. The Troy, Mich.-based expert in innovation-boosting engineering software went public at 13 a share on Nov. 1 last year.
Notice on a daily chart how Altair has made a habit of breaking out of IBD-style bases, going up quickly in just a few days, then reversing sharply below the correct entry. But from a longer point of view, the small cap has done a marvelous job of staying on the north side of its 50-day moving average.
Altair on Monday posted a 167% leap in Q1 profit to 8 cents a share as revenue rose 19% to $91.7 million, a quarterly best.
Meanwhile, Ligand thrust higher for a fifth straight session, rising more than 2% to 185.37. The biotech play is extended 7.7% past a 172.17 entry in a well-formed double-bottom base.
The midpoint of 172.07, found in between the two sell-offs within the base, is in the upper half of the base's price range. That's a good sign.
New High For This Biotech Play
According to IBD Stock Checkup, Ligand sports a shiny Composite Rating of 98 on a scale of 1 to 99. This rating, found only in IBD Weekly and at Investors.com, gauges a stock's corporate fundamentals, stock price strength, and quality of institutional sponsorship. It is not a purely technical indicator.
Ligand's Relative Price Strength Rating is a stout 91, also on a scale of 1 to 99. This means the San Diego-based company is beating 91% of all publicly traded companies in IBD's database in 12-month price performance.
In terms of market value, at $3.9 billion Ligand barely lifts a finger to the likes of Celgene (CELG), Regeneron Pharmaceuticals (REGN) and Amgen (AMGN) in the biotech world. However, Ligand is body-slamming these three peers in terms of earnings growth. Ligand has grown profits 91%, 57%, 77% and 172% vs. year-ago levels in the past four quarters.
Analysts polled by Thomson Reuters see earnings in Q2 rising 43% to 96 cents a share. Keep in mind, that's on top of the 91% jump in the year-ago quarter.
Revenue broke the $50 million barrier on a quarterly basis in both the past two quarters. Year over year, the top line has boomed higher by 43%, 54%, 32% and 92% in the past four quarters.
Read this recent New America feature piece on why Ligand is growing so rapidly.
Fresh Breakout No. 2
China Lodging, a major player in the fast-growing travel market in the Middle Kingdom, sprinted 9% to 169.50 in quadruple normal trade. The stock surpassed a 161 buy point in an unusual four-month double bottom. The RS line roared into new high ground.
The proper buy zone goes up to 169.05, or 5% past the 161 entry.
China Lodging posted a 79% jump in first-quarter earnings to 61 cents a share as revenue rose 42% to $332 million. After-tax margin climbed an impressive 310 basis points to 13.5%.
The stock ranks No. 5 in the IBD 50.
Keep in mind that China Lodging's recent base-on-base structure is at least fourth stage, which increases the risk of a breakout failure. The stock initially broke out of an 11-week cup base at 33.10 in the week ended March 18, 2016.
However, some companies with stellar fundamentals defy the odds.
(For the latest updates on this story and other market coverage, check IBD stories on stocks today. Also, please follow Saito-Chung on Twitter at @IBD_DChung for additional commentary and analysis on top stocks, charts, bases and financial markets.)
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