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Computer Groups Weigh On Stocks, Apple Steady; Will This Sector Lead?

Ten computer-related industry groups dropped 1% or more in the stock market Monday, effectively taking away morning gains of the key stock indexes. But the stock market remains in a confirmed uptrend, and the quiet action looks normal overall after the market’s superb advance last week.

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The 10 computer-related industry groups, which can be viewed in IBD’s daily rankings of 197 industries, include education software, desktop software, enterprise software, databases, integrated systems, networking and hardware.

Meanwhile, Apple (AAPL) held firm, finishing off less than 0.4% after rallying a combined 16% in the prior two weeks. The iPhone giant joined Leaderboard on May 4 as the sole member from IBD’s telecom consumer products industry group. Shares are virtually extended from the proper buy point, holding 5% above 179.04 in a mild seven-week double-bottom base.

On Friday, the Stock Market Today column detailed extensively Apple’s recent price action and newest setup. The market cap of Apple is now at $954 billion, creeping ever closer to becoming the first U.S. company valued at $1 trillion or more.

The Street sees revenue at Apple rising 15% and 13% in the next two quarters through September, helping to fuel EPS gains of 31% and 28%.

The Nasdaq composite edged less than 10 points higher, while the S&P 500 ended virtually flat. The Dow Jones industrial average added nearly 0.2% on top of last week’s nearly 2.4% rally. The latter two indexes crossed back above their respective 50-day moving averages last week, a bullish sign.

IBD upgraded the current outlook to “Uptrend resumes” from “Uptrend under pressure” on Thursday.

The Russell 2000 halted a six-day win streak, easing around 0.4%. The popular small-cap gauge is up nearly 5% since Jan. 1.

Among IBD’s 197 industry groups, the Leisure-Gaming/Equipment industry group led the gainers, rising 3% on news that the Supreme Court struck down a law that would have banned most forms of betting on sports. Penn National Gaming (PENN), which had scored eight up weeks in a row through Friday, surged an additional 4% to 33.65 and cleared a 33.40 buy point in a nearly four-month cup without handle.

A stock that posts multiple weekly gains in a row is showing bullish action and deserves extra attention. Moreover, Penn National’s relative strength line stretched into new high ground ahead of Monday’s breakout, a good sign.

The RS line compares a stock’s daily performance against the S&P 500. Prefer companies that reveal a rising RS line, painted in blue in all IBD charts and in MarketSmith, IBD’s premium stock charting and screening service.

Fiber-optic telecom gear stocks also joined the upside in a big way on reports that President Trump is taking a softer stance toward U.S. companies that do business with Chinese smartphone maker ZTE. But most stocks in this group have severely lagged the market leadership since the second half of 2017.

More companies in the oil & gas and retail sectors are showing much more relative strength than fiber-optic plays (think names such as Royal Dutch Shell (RDSA), Marathon Oil (MRO) and IBD 50 name Viper Energy Partners (VNOM)).

Meanwhile, the Retail-Apparel/Shoes industry group has placed in the top 10 among 197 IBD groups for six-month relative price performance for more than five weeks in a row. Ross Stores (ROST), up 1%, is carving the right side of a new saucer-style pattern.

That chart pattern also shows a mild correction of 14% from high to low, so it could also be viewed as a long flat base. (Please read this new Investor’s Corner column on how stocks can form bullish bases that can house more than one proper interpretation.)

Ross Stores also shows an 85 Relative Price Strength Rating, as seen in IBD Stock Checkup. This rating differs from the RS line. The former shows that the deep discount retailer of name-brand clothing and home goods is outperforming 85% of all stocks in IBD’s database over the past 12 months.

Ross Stores is also one among six companies that hold a bullish Composite Rating of 95 or higher on a scale of 1 to 99. Lululemon Athletica (LULU) sports the group’s highest Composite Rating of 99. The Vancouver-based yogawear and athletic apparel giant joined Leaderboard as a top growth stock on Feb. 7.

The Innovator IBD 50 (FFTY) ETF notched a multimonth high of 35.57 before getting turned back. It closed slightly higher and shows a gain of around 5%. That keeps FFTY, which recently received a four-star rating from Morningstar, ahead of the S&P 500’s 2% advance since Jan. 1.

The Nasdaq composite, which gained 28.2% in 2017, is up 7%. FFTY rallied 34% in 2017.

West Texas intermediate crude oil futures finished roughly break-even and remain above $70 a barrel. The yield on the benchmark U.S. Treasury 10-year bond hovered near 3%. Futures traders see a 100% probability that the Federal Reserve will hike short-term interest rates by another quarter point in June. But it’s still unclear if the Fed will aim for one or two additional moves in the second half of the year.

After the close, IBD 50 name China Lodging (HTHT) is slated to report Q1 results. The Street expects profit to jump 82% to 60 cents a share. That follows year-over-year increases of 10%, 40%, 74%, 19%, 58% and 86% in the prior six quarters.

Revenue is seen rising 37% to $315.9 million. The top line grew 4%, 5%, 19%, 39% and 45% in the prior five periods.

In late January to February, the hotel chain formed a faulty V-shaped cup base and never broke out. Shares fell all the way down to the 40-week moving average but held up. Volume in the two most recent down weeks cooled as well.

For now, a new double bottom base has formed, producing a new correct entry point at 161.

See an update of new stocks going into the IBD 50, Big Cap 20, Sector Leaders and other key growth screens by going here.

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