Stitch Fix Breaks Out, FAANG Stocks Rally In Broad Market Advance

Online fashion play Stitch Fix broke out of a new base and Apple continued to motor higher as the Nasdaq composite commanded the market upside, rising more than 1.3% during late-afternoon trading in stocks today.


Clearly, large-cap techs in the fields of software, e-commerce, biotech and semiconductors led the way. The S&P 500 rallied nearly 0.9%, better than an almost 0.5% lift for the Dow Jones industrial average.

A strong U.S. jobs report for June did not send bond investors fleeing the debt market. In fact, Treasuries saw good demand on the long end as Friday marked an official start of billions of dollars in U.S. tariffs on Chinese imports.

The yield on the benchmark U.S. Treasury 10-year bond slipped 2 basis points to 2.82%.

“The top-level takeaway is that the labor market remains consistent with robust economic growth but not yet tight enough to generate the kind of upward inflation pressures that would encourage the Fed to raise rates more rapidly,” said Eric Winograd, senior economist at the mutual fund giant AB.  “One very encouraging aspect of the labor market over a longer time horizon is that the employment/population ratio is steadily marching higher.”

The U.S. economy added 213,000 jobs in June, higher than forecasts of 190,000. Average hourly wages rose 2.7% year over year, just below the 2.8% Econoday consensus forecast.

Jeffrey Cleveland, chief economist at Los Angeles-based money manager Payden & Rygel, points out that while nonsupervisory wage growth “continues to slowly climb,” he’s not seeing evidence of an “overheating” economy. That particular factor of wage increases hit a current economic cycle high of 2.8% in June. Plus, manufacturing jobs increased by 36,000 amid widespread media coverage on the tit-for-tat tariffs on imports.

“So, two very popular narratives (trade and overheating) are not seeing much love in the June jobs report,” Cleveland told IBD.

A New Growth Stock Breaks Out

Stitch Fix (SFIX), which went public at $15 a share in November last year, is trying to surpass upside resistance near 30. The stock peaked at 30.07 in December, then began forming its first authentic base pattern.

The San Francisco-based company is a small cap with a market value of $3.1 billion, a float of 27 million shares, and 97 million total shares outstanding.

That base has a boxy shape and is not a double bottom, since the June 4 low of 18.02 did not undercut a first low of 18.00 seen four months earlier.

Yet notice on the accompanying weekly chart how Stitch Fix’s action shows several positive factors.

One, the stock is leading the 10-week moving average, drawn in red, higher. Two, the relative strength line (painted in blue in all IBD charts and in MarketSmith) is rocketing into new high ground. This means Stitch Fix is beating the pants off the S&P 500.

Three, the strong weekly gain is not a fluke; Over the past five weeks, the e-commerce play had already seen three strong weekly gains in heavy volume. That’s a strong clue the institutional crowd is accumulating shares.

A Top Industry Group

According to Stock Checkup, Stitch Fix holds a fantastic 97 Composite Rating on a scale of 1 to 99.

That ranks it No. 4 in terms of this special rating, combining fundamental, stock price strength, and institutional sponsorship quality measures, within the Retail-Internet industry group. The Internet-Retail group itself is ranked No. 14 on a six-month relative basis among 197 industries tracked each day by IBD.

Stitch Fix has turned in an annual profit for three years in a row, but quarterly earnings can be lumpy. Seasonality may be one factor. Plus, the company is new and so must invest heavily for future growth.

Earnings fell 67% to 5 cents a share in the fiscal first quarter ended in October, then slid 50% to 7 cents in the January-ended second quarter. But the bottom line jumped 200% to 9 cents a share in Q3 ended in April.

The Street sees fiscal Q4 profit of 3 cents a share vs. a loss of one penny in the year-ago quarter.

What has been consistent? Sales growth. The top line has bulged 139%, 51%, 35%, 26%, 26%, 25%, 24% and 29% vs. year-ago levels in the past eight quarters. Analysts on consensus expect fiscal Q4 sales rising 23% to $317.7 million and FY 2018 sales up 26% to $1.23 billion.

This Retail Internet Play Is No. 1

Top ranked within that group: Etsy (ETSY), the global online e-commerce platform for artisans, artists and photographers. Etsy is a member of IBD Leaderboard. The IBD premium service, started in 2011, helps investors pick outstanding growth stocks. The daily and weekly charts of Leaderboard stocks get annotations in real time to pinpoint prime buy points and sell signals.

Etsy joined the Leaders list on Feb. 28 as a full-sized position. At that time, shares gapped up and out of a well-formed cup without handle.

That cup without handle featured a standard 21.96 buy point. Go to a Leaderboard daily chart to see the alternative entry.

Today, Etsy is approaching the 45 price level.

Nasdaq Megacaps Rise

Meanwhile, Apple (AAPL) continued to do heavy lifting for all the major indexes with a 1.2% jump to 187.61. At that price, it remains barely within the 5% buy zone.

The iPhone, iMac, digital wearables and digital services giant has risen at a slow and steady pace since it cleared a proper double bottom and a 179.04 buy point.

Please see this recent Stock Market Today piece on why Apple’s improving fundamentals make the stock a difficult one to defy. As noted in the IBD “Click” all things tech blog on Friday, Apple got a price-target hike from Loop Capital on solid growth prospects for its new iPhones.

Elsewhere in stocks today, gold mining, wholesale food, newspaper, major retail discount chain, alcohol and homebuilder stocks failed to join the buying fest. These groups and a few others fell 0.5% to 3.8%.

Keep track of the top industry groups within IBD’s ranking of 197, for the best growth stocks tend to hail from leading industries, not lagging ones.

Big Buying In Biogen

Biogen (BIIB), which has made big gains in past bull market cycles, looks eager to lead again.

The stock, getting a boost from positive results in a middle-stage trial for a new treatment for Alzheimer’s disease, gapped up at the open and surged more than 19%. The intraday high of 367.89 came within less than 3 points of the new cup base’s left-side peak.

Biogen has grown earnings 22%, 4% and 16% vs. year-ago levels in the past three quarters on sales gains of 4%, 15% and 11%.

According to IBD Stock Checkup, Biogen’s Relative Price Strength Rating is a lowly 58 on a scale of 1 to 99. But after Friday’s massive gain, expect that RS Rating to rise quickly.

Focus on stocks with an RS Rating of 80 or higher. This means you’ll put hard-earned money only in those companies that are outperforming at least 80% of the entire stock market over the past 12 months.

(Please follow Saito-Chung on Twitter at @IBD_DChung for more commentary and analysis on growth stocks, breakouts, sell signals, and financial markets.)


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Originally posted 2019-09-19 23:16:24.


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