Apple Leads Stock Market Higher; Will These 3 Chip Stocks Rally Again?

Stock SectorApril 10, 201811min16
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Apple (AAPL) rose as much as 2.8% Monday before giving up nearly half of that gain. Meanwhile, semiconductor shares helped give the Nasdaq composite the edge over its fellow major indexes.

Bargain hunters forced the market bears into retreat mode. Yet uncertainty lingers over whether the U.S. and China will follow through on declarations to raise tariffs on a wide swath of imports from each other.

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At 3:45 p.m. ET, the Nasdaq was well off session highs, but still rallied 0.8%. The S&P 500 and Dow Jones industrial average trailed slightly, rising around 0.6%. Volume is running more than 10% lower vs. the same time Friday on both main exchanges.

The small-cap S&P 600 lagged, losing intraday gains to trade flat.

More than a dozen of IBD’s 197 industry groups and subgroups at one point advanced 2% or more, including biotech, gaming software, superregional banks, money center banks, internet content, semiconductor equipment, money center banks, metal ores and international oil and gas exploration.

U.S. government bonds fell as the yield on the benchmark U.S. Treasury 10-year note jumped to as high as 2.81% before receding a tad, vs 1.71% for 3-month T-bills and 2.29% for 2-year notes. WTI crude oil futures sprang 2.2% higher to $63.42 a barrel.

Apple, the largest company on U.S. financial exchanges by market value, is trying to rise back above its key 50-day moving average. In late trading, the stock gained 1.3% to 170.63.

Volume is thin, trading just 40% below the 50-day moving average. Yet the rebound pushed the iPhone giant back into positive territory for 2018.

The Next Stage For Apple

Apple is still in the early stages of forming a new base. Keep in mind that the megacap tech was due for a rest after rising more than 50% past a first-stage cup with handle at 118.12 back in January 2017.

Those who bought shares at that prime buy point could afford to sit tight during the past six months as Apple bounced up and down within a relatively narrow trading range of 150 to 180. During that period, Apple had broken out of a new base, an eight-week cup with handle that featured a 160.97 entry point. The Oct. 27 breakout spurred an 11.9% rally through mid-January of this year, but Apple surrendered all of that gain amid the market’s early-February correction.

Apple now gets the worst possible E grade for Accumulation/Distribution based on price-and-volume action over the past 13 weeks. Indeed, the member of IBD’s Telecom-Consumer Products industry group hasn’t posted an up day in above-average turnover since March 2. Watch for a potential change in such interplay between price and volume and use either the stock quotes or IBD Stock Checkup to see if Apple’s Accumulation grade can reach a C (neutral) or an A or B (net accumulation among institutional investors) in the coming weeks or months.

When a stock breaks out of a well-formed base such as a flat base or double bottom, the Accumulation rating should ideally be at least C+ or higher.

The Accumulation rating for the Nasdaq composite, found in the General Market Indicators page at the bottom of IBD’s Big Picture column or in the Market Trend section of Investors.com, is currently a lowly D-.

Read the latest corporate news on Apple by going to IBD’s Technology section.

Meanwhile, MKS Instruments (MKSI) also outperformed the major indexes with a 1.9% jump to 112.50 after popping to 115.60 intraday, The member of IBD’s semiconductor equipment industry group rebounded back above its 50-day moving average, a sign of strength. Plus, MKS is above a prior buy point of 109.50 in a 15-week cup with deep handle and in buy range.

The test of the 50-day line is MKS’ first since its Feb. 15 breakout. Normally, during a confirmed market uptrend, such a rebound off or back above this medium-term support level offers holders a chance to add shares to a winning position. Currently, the market is still in an official correction and it’s not clear yet if the overall market sell-off has ended.

MKS is expected to grow first-quarter earnings 57% to $2 a share, on top of a 234% boost in the same quarter a year ago.

Chips To Watch

Three more chip-related names that deserve close watch:

Lam Research (LRCX): The chip equipment giant, up 2.2% to 194.89, is trying to end nearly two weeks of being submerged beneath its 50-day moving average. Lam had a stellar run in both 2016 and 2017. Analysts polled by Thomson Reuters see profit jumping 56% to $4.38 a share in the fiscal third quarter ended in March.

Nvidia (NVDA): The datacenter, automobile self-driving and deep learning chip technology giant gained 1.5% to 217.39 but remains beneath its 50-day moving average. Shares lie just 13% below an all-time peak of 254.50. Even a drop to the 200-day line would limit the current correction to around 22%, the normal range for a cup base or a double bottom.

Fiscal first-quarter profit is seen climbing 84% to $1.45 a share. Nvidia’s Q1 ends in April.

Mellanox Technologies (MLNX): The data networking chip expert burst back above its 50-day moving average on Feb. 22 in heavy trade, sparking a follow-on entry point. The stock is also up 47% since clearing a 50.20 buy point in a long saucerlike base in late November. Watch for a new follow-on entry point or a new base to emerge.

Mellanox, a member of IBD’s fabless semiconductor group boasts a 95 RS Rating and a B+ for Accumulation/Distribution as seen in IBD Stock Checkup.

A New Market Leader?

Meanwhile, in IBD Leaderboard, Kirby (KEX) sought to recoup some of Friday’s steep decline of more than 3.7%. Shares of the marine transport firm rose 0.8% in light trading to 81.20. Last week, the stock cleared an 81 buy point in an eight-week flat base, which sits atop a much longer saucer-style base pattern.

Kirby shares are up 21% year to date.

The Houston-based midcap company is trying to end a 12-quarter drought in earnings growth. The Street sees Q1 earnings rising 14% to 58 cents a share and full-year profit up 37% to $2.83 a share. Sales rose 25% to $2.21 billion in 2017, but earnings fell 23%.

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