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Techs Lead, QSR Drops Big; Why Apple Is Still In Buy Range After 2nd Breakout

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Stocks got off to a rosy start for the week on Monday, led by large-cap tech and internet names. Apple (AAPL), meanwhile, remained in buy range after clearing a second handle buy point at 116.38 within its long first-stage cup base pattern.

The Nasdaq composite rose 1% while the Nasdaq 100 gained more than 1.1%. The S&P 500 rose 0.5% and the Dow Jones industrials more than 0.4%, trailing the Russell 2000's nearly 0.7% lift. Volume fell on both the Nasdaq and the NYSE, according to preliminary data.

Top industry groups in the stock market today included fiber optic gear, wireless telecom service, chipmaking and fabless semiconductor stocks. A sharp drop in gold mining and various oil-related shares hurt the S&P 500 and the Dow more than the Nasdaq.

Lumentum (LITE), a leading name in IBD's fiber optic industry group, rose more than 2% to 41.40 in dull trading. The maker of optical data networking components and lasers is set to report third-quarter results on Thursday. Wall Street sees earnings rising 76% to 44 cents a share.

Lumentum's earnings dropped 14% in the year-ago period, then jumped 29%, 191% and 156% in the three most recent quarters. Lumentum has held above its 50-day moving average all throughout its run since breaking out past a 27.49 buy point in a cup with deep handle on July 20. (The accompanying chart shows Lumentum's solid move on a weekly chart, with the 10-week moving average painted in red.)

In the restaurant sector, Burger King chain and Tim Hortons coffee and doughnut chain operator Restaurant Brands International (QSR) raced to a six-week high of 47.49 but then reversed badly, falling 5% to 44.67. Volume ballooned more than four times its normal level and the stock sank below its 50-day line.

On Monday, the Ontario, Canada-based company reported a nearly 35% jump in third-quarter adjusted profit to 43 cents a share. That marked the sixth quarter in a row of solid earnings. Systemwide sales rose 4.8% at Tim Hortons and 7% at Burger King in constant currencies. Same-store sales rose mildly, up 2% and 1.7%, respectively.

QSR had recently cracked above longtime resistance at the 45 price level with a high-volume breakout on July 20 past a 44.12 entry. Now, watch to see if the stock can find support at the former resistance level.

Back to Apple, the mega-cap tech rose 0.9% to 117.65, meaning it's extended past a 110.33 buy point in a long cup with handle pattern. The pattern began to really take shape after the iPhone maker gapped up and tested upside resistance at its 200-day moving average on July 27, one day after it reported results for the June-ended fiscal third quarter.

Six weeks later, Apple sold off but held above its now-rising 50-day moving average — a clear sign that the tables were turning for the largest company in the U.S. markets by market cap. That bullish action set up a breakout past the 110.23 intraday high in a handle that formed from Aug. 16 to Sept. 13. A day later on Sept. 14, Apple rallied more than 3% and cleared the 110.33 buy point. The cup with handle became a bottoming base.

More recently, shares made another constructive pullback and the stock formed a second handle that featured the 116.38 buy point — 10 cents above the handle's high of 116.28. Keep in mind that's a risky alternative entry for the stock.

The 5% buy zone from the new 116.38 buy point extends to 122.20.

On Sept. 2, Apple's 50-day moving average crossed back above its slower-moving 200-day line, a positive sign.

Apple is slated to report after the close Tuesday; earnings are seen falling 16% to $1.65 a share after jumping sharply in the year-ago quarter, up 38%.

Wall Street sees revenue falling 9% to $46.9 billion. The most bullish estimate among 35 analysts polled by Thomson Reuters is $48.3 billion, which would still be down 6.2% vs. the $51.5 billion Apple posted in the year-ago quarter.

Also on Tuesday, expect quarterly reports from Under Armour (UA) (before the market open), Fiat Chrysler (FCAU), Lockheed Martin (LMT) and Spirit Airlines (SAVE). All four firms will report before Tuesday's market open. Under Armour is expected to deliver a 108% increase in earnings to 25 cents a share and a 21% rise in sales to $1.46 billion.

Under Armour still lies 28% below its all-time-week peak of 52.95 and currently gets a lowly 34 Composite Rating from IBD Stock Checkup. The stock's 16 Relative Price Strength Rating is virtually no better than rival Nike (NKE), which is also lagging the market over the past 12 months with a 13 RS rating.

The yield on the 10-year U.S. Treasury yield rose to almost 1.77%. U.S. crude oil futures edged 0.6% lower to $50.52 a barrel.

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