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Stocks Up, 11 Industries Rise 12% Since Jan. 1; Will Alphabet Break Out? | Stock News & Stock Market Analysis

Market breadth continues to improve as the key indexes showed solid gains on Monday with just two trading sessions remaining in February.

X The advance is even more impressive given the negative reaction among a few Chinese companies trading on the NYSE, including New Oriental Education (EDU) and TAL Education (TAL), amid news that China’s leader, Xi Jinping, may be able to exceed his two-term limit as the country’s president.

TAL fell more than 5%, yet closed near the top of its intraday range. At 36.81, the stock also is holding mildly above a 36.26 buy point in a choppy late-stage base. TAL has been a monster winner, rising nearly six-fold since it initially broke out of an excellent cup with handle at 6.54 (adjusted for a 6-for-1 stock split) in the week ended Nov. 13, 2015. That base could also be interpreted as a double bottom.

New Oriental, down 4% to 92.02, is trading just below a 50-day moving average and may be in the early stages of forming a new base.

Plus, leading Chinese internet and e-commerce stocks don’t seem to be having a severe reaction overall. Autohome (ATHM), part of IBD Leaderboard, fell more than 2%, but volume was mildly below average.

The auto information website is up 28% year-to-date and remains on the north side of its 50-day moving average. Autohome, being a midcap firm with a market value of just under $10 billion, still tends to trade more wildly than, say, any stock on the Dow Jones industrial average.

The Nasdaq gained 0.9% amid nice rallies by the FAANG stocks, while the S&P 500 matched that gain. Alphabet (GOOGL), which stands a good chance of posting mild double-digit profit growth in both 2018 and 2019, rose 1.1% to 1,141 in light trade and is working on new cup-type base.

A cup base must be a minimum of six weeks in length, while a strong cup with handle should never be less than seven weeks.

Alphabet is up more than 8% year to date, and its relative strength line (drawn in blue in every IBD chart) reflects outperformance vs. the S&P 500 for more than two weeks. The megacap tech is also up more than 13% (or extended) from an October breakout past a well-formed flat base that showed a 1,006.29 buy point, or a dime above the base’s left-side peak set on July 24.

The stock market followed through on Valentine’s Day, when the Nasdaq ripped 1.9% higher in heavier volume vs. the prior day. That big gain came on day four of a new rally attempt following a nearly 12% correction by the leading market index.

Also on Feb. 14, the S&P 500 rallied 1.3% higher as NYSE volume rose, marking a follow-through day of its own.

Leading stocks lagged a bit, as the Innovator IBD 50 ETF (FFTY) gained just 0.5%. The exchange traded fund managed by Innovator Capital that tracks stocks in the IBD 50 was up more than 37% in 2017.

Top industry groups for the day included solar, computer networking, RV makers, fiber-optic telecom equipment, mortgage services, airlines and movies, all up 2% or more. Only a handful of IBD’s 197 industry groups fell 1% or more, including dairy products, home-furnishings retailers, specialty retailers and auto parts.

Another reason why Monday’s gain is impressive: U.S. new-home sales for January came in at 593,000 on an annualized rate, badly missing the Econoday estimate of 640,000. Indeed, interest-rate-sensitive names are struggling in 2018 as U.S. government bond prices keep falling, jacking up interest rates.

The yield on the benchmark U.S. Treasury 10-year bond was around 2.86%, still off its recent peak of 2.95%, but up from 2.40% at the end of last year.

Year to date, at least 14 of IBD’s 197 industry groups have risen 10% or more. And 11 groups sport an advance of 12% or more. In contrast, the S&P 500, at 2779, is up less than 4% since Jan. 1, excluding dividends.

Such information is vital for the growth investor. Why?

Decades of research by IBD show that as much as half of a great stock market winner’s move is influenced by the performance of its broad industry sector and precise industry group. For this reason, IBD ranks every one of the 197 industry groups and subgroups by six-month relative performance each day. See the current list in IBD Data Tables, featured inside IBD Stock Lists.

Leisures-Movies and Retail-Internet are up 21% and 20%, respectively, since Jan. 1. You can see the entire list of companies making up each industry group by using MarketSmith, IBD’s advanced-level stock screening and historical charting service.

The other industry groups leading the market with rallies of 12% or more are desktop software, department stores, mail-order retailing, five software groups (enterprise, gaming, security, financial and education), and automakers.

Software, One Of The New Market Kings?

The software sector remains robust. Among the 33 sectors tracked in the market in IBD’s unique stock research tables, Software is one of the top-performing tech sectors, at No. 6. The only other tech group in the top 10 for medium- and long-term performance is Internet, at No. 2.

Alphabet has a 98 Composite Rating from IBD Stock Checkup; Weibo (WB) and Grubhub (GRUB) are two of Alphabet’s Internet sector mates and both have a 99 Composite on a scale of 1 to 99.

The Composite Rating incorporates fundamentals (such as sales growth, earnings growth, ROE and margins), price action, and the quantity and quality of institutional ownership.

Meanwhile, Palo Alto Networks (PANW) shot up 5% after hours after the innovative developer of enterprise-level security software and systems posted a 54% leap in fiscal second-quarter non-GAAP earnings to 63 cents a share on a 27% jump in total revenue to $542 million, a quarterly high.

The results appear to confirm the company’s ability to find ways to grow even after it had posted triple-digit EPS gains in almost routine fashion throughout the middle of 2015 through late 2016.

The stock, up more than 2% to 169.32 in more than triple average volume, had built a seven week flat base with a 156.95 prime buy point, broke out on Jan. 18, then hit massive market turbulence as distribution days rocked the stock market averages from late January to early February.

However, the stock showed bullish reversals and clear clues of institutional buying support near the 50-day moving average on two occasions in February, on the 6th and the 9th, then regained its 156.95 entry point in heavy volume on the same day as the Nasdaq’s Feb. 14 follow-through, which signaled it’s time to actively update your watch list and buy the best breakouts.

IBD tech reporter Reinhardt Krause provides more details on Palo Alto’s terrific earnings report in this story.

(Please follow Krause and Chung on Twitter at @IBD_RKrause and @IBD_DChung for more commentary on growth stocks, technology, the economy and financial markets.)

 


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