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Stocks Up, Arista Leads; 3 Signs Why Apple's Breakout May Bear Fruit

Computer-related stocks, including MacBook maker Apple (AAPL), helped lead the stock market higher Monday with a 1.5% rally to 159.85 in light trade. Growth stocks continued to reflect healthy institutional demand, even if the volume in many issues ran lighter than normal for the day.

X The Nasdaq composite led, rising 1.3% for the day and getting as high as 6340, less than 2% below its recent all-time peak of 6460. The Nasdaq 100 was also up 1.2%.

The S&P 500 wasn't that far behind despite lagging the Nasdaq all year long. The large-cap benchmark rose 1%.

Eight of the 30 components within the Dow Jones industrial average gained 1 point or more, helping the popular index rise 0.6%. They included Goldman Sachs (GS) (up 1.4% to 227.36), which is still in the middle of forming a potential new saucer base; Visa (V) (up 1.8% to 101.87), extended 5.3% past a 96.70 entry in a shallow flat base; and 3M (MMM) (up 0.7% to 207.37), which has muscled 19% past a 180.16 saucer-with-handle entry and is now possibly working on a new base.

Volume finished sharply lower than at the same time Friday on both main exchanges.

Other top industry groups for the day include data storage, specialty enterprise software, fiber-optic telecom equipment, logistics transport, Midwest banks, Southeast banks, fabless semiconductors, trucking and medical software. All of these groups ran up more than 2% each.

The S&P SmallCap 600 and the Russell 2000 both beat the major indexes, rising almost 1.5%, while the Dow Jones transports hustled 1.6% higher as crude oil futures slid more than 2.6%. WTI futures hit a session low of $47.51 a barrel. Brent crude fell 2.6% to $50.73.

Apple's move past a 156.75 flat-base entry has not produced big gains yet. But the stock is keeping its bullish post-earnings gap (established Aug. 2 following its fiscal Q3 report). The best market winners often gap up in price on a breakout from a conventional base, then keep rising and hitting new highs.

Two more reasons why Apple is showing good prospects of further gains:

One, the RS line has moved into new high ground, signifying outperformance vs. the S&P 500.

Two, the stock is holding nicely above the short-term 10-day moving average. Apple tested support on this line, painted in green on the daily charts at IBD Leaderboard, last week.

Apple has now rallied more than 37% from a Jan. 6-9 breakout past a first-stage cup with handle at 118.12.

Elsewhere in the stock market today, IBD Sector Leader YY (YY) got close to posting a new all-time high as shares rallied as much as 4.6% to an intraday high of 82.54. Turnover jumped more than 30% above its 50-day average.

Late last week, the Guangzhou-based Chinese social network posted terrific quarterly results (EPS up 53% to $1.53 a share, revenue up 29% to $384.8 million). YY noted "exceptional popularity" in its April launch of "Happy Werewolf Kill," a small-room online social game. Meanwhile, the company's total mobile live streaming monthly active users grew 27.1% year over year to 66.1 million. Total live streaming paying users catapulted 46% to 5.7 million.

Full-year results also look to be bright. The Street sees earnings rising 40% to $5.85 a share in 2017 on a 24% jump in revenue to $1.52 billion.

In FY 2018, earnings are seen growing 16% to $6.77 a share and revenue up 18% to $1.79 billion.

YY is too far above a proper buy point of 61.62. The buy zone extends up to 64.70, 5% past the entry.

On Monday, YY said it plans to sell 5.5 million American Depositary Shares (ADS's). One ADS equals 20 Class A common shares.

Another Sector Leader, Arista Networks (ANET), is also keeping its recent bullish gap in place. Shares rose as much as 3% to 170.69 and are still in buy range from a 163.07 entry in a six-week flat base.

Arista on Aug. 3 reported fiscal Q2 results, and few other public companies in the U.S. can match the firm's growth of 81% in earnings or 51% in sales. Plus, the specialist in cloud network hardware showed an amazing 600 basis-point lift in after-tax margin to 26%, a quarterly record.

Arista has a relatively thin supply of shares with 73 million outstanding and a float of 45 million. These are far smaller figures than its arch rival Cisco Systems (CSCO) (5 billion shares out, 4.95 billion float.)

A 99 EPS Rating puts Arista at the top of its 15-member Computer-Networking industry group, as seen in IBD Stock Checkup.

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