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Stocks Mixed; This California Builder Breaks Out; What To Watch For In Apple

The U.S. stock market launched the final two months of the year with mixed results as techs and the Nasdaq cooled off, while Apple (AAPL) halted a three-day win streak. Meanwhile, cyclical and commodity issues pumped other major averages higher.

The Nasdaq composite slipped less than 0.2% on the back of a 1.2% drop in lighter volume in Apple, the largest company in the U.S. exchanges by market cap ($861 billion). But the Powershares QQQ Trust (QQQ) ETF, which tracks the Nasdaq 100, edged just a few pennies lower.

The Dow Jones industrial average gained more than 0.2%, while the S&P 500 rose nearly 0.2%. Volume increased on both exchanges, according to early figures. Because the Nasdaq's drop was small, it narrowly escaped a distribution day, which points to institutional selling.

Apple, set to report fiscal Q4 results after the close Thursday, is still in buy range after clearing its newest base: an eight week cup with handle that has a 160.97 buy point. Apple's fiscal year ended in September.

The iPhone giant had broken out Aug. 2 when it gapped up in price and rallied past a 156.75 entry. But gains were limited, and during the market's mild pullbacks in September, Apple soon dropped below that proper entry.

Watch to see if Apple can continue its streak of double-digit profit growth. Q4 earnings are seen rising 12% to $1.87 a share, following increases of 2%, 11% and 18% in the prior three quarters. Sales are expected to climb 8% to $50.74 billion, which would mark the best year-over-year gain in eight quarters.

As seen in IBD Stock Checkup, Apple's Relative Price Strength Rating is a very respectable 86 on a scale of 1 to 99. That's a significant improvement from a 59 at the start of the year.

Housing Stocks Firm

Elsewhere in the stock market today, the building sector continued to strengthen.

William Lyon Homes (WLH) gapped up a second straight day, rising more than 4% to 29.28 in heavy trade. The builder of single-family homes has surged past a 25.28 buy point in a narrow flat base after reporting excellent third-quarter results (EPS up 109% to 71 cents, with sales up 43% to $490.3 million). After-tax margin jumped 180 basis points to 5.6%.

The right time to have bought the small-cap play was either Monday or Tuesday, when shares surpassed the left-side lip of the narrow six-week base. That flat base could also be viewed as part of a much longer base.

Watch to see if William Lyon will pull back in lighter volume such that it may offer investors a second buy opportunity. Those following IBD's CAN SLIM investment system should not chase the stock more than 5% past the 25.28 entry, or 26.54.

Steel stocks outperformed, rising 2% as a group. U.S. Steel (X) rose nearly 8% to 27.30 and almost retook its 200-day moving average after posting a much-better-than-expected 130% leap in Q3 earnings to 92 cents a share. Revenue rose 21% to $3.25 billion. Revenue has now grown an average 19.7% vs. year-ago levels in the past three periods.

U.S. Steel, however, still needs more time to work on the right side of a new base that extends back to February. Back then, the stock cleared a cup without handle at 39.24, but got nowhere fast. Wall Street remains concerned about cheap foreign imports and the ability of Congress to pass meaningful legislation that would spur infrastructure investment.

U.S. Steel peer Ternium (TX) fared poorly after it reported a 15% drop in Q3 earnings to 99 cents a share. The stock slid more than 3% to 29.93, slipping further below its rising 50-day moving average. The Luxembourg-based steel products maker has cut its gain from a late-June breakout past a 28.14 buy point to 6%.

In the year-ago quarter, Ternium's earnings ballooned 800%. Sales picked up 34% to $2.48 billion, marking the biggest year-over-year increase in more than four years.

Ternium has a higher Composite Rating at 83 vs. a 51 for U.S. Steel. The former has been logging higher highs and higher lows since it cleared a first-stage bottoming base pattern at 15.98 during the week ended March 4, 2016.

In economic news, the ISM manufacturing survey came in lower than the Econoday forecast for October but was still robust at 58.7. A figure above 50 points to expanding factory activity.

The Federal Reserve, in its penultimate meeting of the year, held off on making a new quarter-point hike in short-term interest rates as policymaking board members expressed ongoing concern that inflation is not hitting a 2% target rate.

In a statement, the U.S. central bank noted that while gasoline prices increased after hurricanes pounded Texas and Florida in late August and early September, core inflation "remained soft."

"On a 12-month basis, both inflation measures have declined this year and are running below 2%. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed, on balance," the Fed added in a news release.

The Fed has raised the fed funds rate four times since December 2015 to a target range of 1%-1.25%. But virtually all bond traders see the rate rising to a 1.25%-1.5% range next month.

The yield on the benchmark 10-year U.S. Treasury bond is now at 2.37%, slipping a bit from a recent high of 2.46%.


IBD's TAKE: Using stock charts correctly can help you time your purchases in leading stocks so that you can maximize your gains and minimize losses within a relatively short period of time. Watching for breakouts from key chart patterns during earnings season is especially helpful. In addition to the flat base and the saucer base, the cup with handle stands out as one of the most critical patterns of human psychology; it visualizes investor fear and greed, hope and denial. Learn more about the cup with handle in this Investor's Corner column so you can gain an extra edge on Wall Street.


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