Nasdaq Sinks, S&P 600 Up; Can This Sector Fight Back?

Apple (AAPL) shares got pummeled following a weaker than expected sales forecast for the holiday quarter, dragging down the Nasdaq composite.


News that the U.S. is denying reports of potential new trade talks with China encouraged further widespread selling. Meanwhile, the construction and building sectors showed vestiges of newfound strength in stocks today.

At 1 p.m. ET, the Nasdaq composite accelerated its sell-off, losing more than 1.7%. Volume is running sharply higher vs. the same time Thursday, thanks in large part to Apple. Turnover in the megacap tech has already surpassed 60 million shares vs. its 50-day average of 34.5 million shares per day.

The S&P 500 dropped 1.3% and the Dow Jones industrial average 1%. The small-cap S&P 600 worked on a third up day in four sessions, rising 0.1% after paring gains.

NYSE volume is running slightly lower vs. Thursday’s intraday level.

Apple And The Impact On The Nasdaq

Apple, down more than 7%, is now near the bottom of a possible new base. The stock, trading as low as 205.65, is now trading 12% below an all-time high of 233.47. It is a major component in all three key indexes mentioned above.

This means that the potential for a flat base or a shallow cup is still quite high, despite Friday’s bruising sell-off.

The maximum decline allowed for a flat base is 15% from the highest intraday price to intraday low. Typical cup patterns show a maximum drop of 33% to 35% during normal bull markets.

The current market is still in a state of correction.

Wall Street expressed both surprise and optimism over the iPhone marketer’s decision to forgo future reporting of specific unit sales. Instead, the Cupertino, Calif., firm plans to provide detail on gross margins for not only its iPhone sales but also related services revenue, which surpassed $10 billion in the quarter for the first time.

Some analysts noted that Apple’s services revenue carry higher profit margins than its hardware.

Will This Sector Rebound?

Meanwhile, cement, wood products, hand tool and construction machinery groups were among the couple dozen IBD industry groups that have risen 8% or more in the past five sessions. On Friday, heavy construction firms bucked the decline, including MasTec (MTZ), Jacobs Engineering (JEC) and Wildan Group (WLDN).

MasTec, which posted a 62% jump in third-quarter earnings to $1.33 a share, catapulted back above its long-term 200-day moving average with gains of more than 6%. Volume was running six times its 50-day average.

The small-cap stock still has plenty of work to do in building the right side of a potential new base. Sales inched up just 1%, but after-tax margin soared 180 basis points to 5.3%. MasTec specializes in building, installation and maintenance for utilities, governments and telecom firms.

At 75.20, Jacobs stock lies just 3% off its 52-week peak of 78.32.

In IBD Leaderboard

Biomedical play Repligen (RGEN), a new member of IBD Leaderboard, soared for a second straight session, rising more than 4% and hitting a new high of 68.12. Volume is running hot, more than triple its usual level.

The Waltham, Mass., firm notched a 33% increase in third-quarter profit to 20 cents a share as revenue vaulted 35% to $49.5 million. The stock is now sharply extended past a 59.09 entry in a perfect flat base.

Notice how, on a daily chart, Repligen showed a strong prior uptrend before sculpting the base. Also, the stock repeatedly survived tests of support at the 50-day moving average.

The Street sees earnings flat in Q4 at 20 cents a share. However, Repligen has pounded the Thomson Reuters consensus EPS forecast by an average 24% over the past five quarters. It missed the consensus view just once in that time frame.

Mutual fund sponsorship is growing nicely in the small cap. As noted in MarketSmith, total ownership by mutual funds and hedge funds has grown to 404 funds and 29 million shares at the end of the third quarter, up from 377 funds and 24 million shares at the end of 2017.

Health Care Stocks Still Shine

Elsewhere, Ensign Group (ENSG) continued to lead a strong charge by long-term medical shares. The stock rallied more than 7% to extend more than 5% past a 40.19 entry in a flat base.

Shares in the Mission Viejo, Calif., nursing facility operator got as high as 45.52. This means the breakout this past week has quickly generated a 13% profit for those who purchased shares at the precise buy point.

Ensign was highlighted earlier this week in a Stock Market Today feature. The 5% buy zone goes up to 42.20.

Other Financial Markets

U.S. crude oil futures kept sinking. Near-term futures sank nearly 0.9% to $63.12 a barrel, yet still remain up 4.5% since Jan. 1.

The yield on the benchmark U.S. Treasury 10-year note rose 2 basis points to 3.16% following a big October increase in payrolls of 250,000 net new U.S. jobs. The September gain was revised higher, too.

Please follow David Saito-Chung on Twitter at @IBD_DChung for more on growth stocks and financial markets.


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Originally posted 2019-09-19 23:24:22.


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