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One characteristic of the current stock market is the number of stocks forming shallow consolidations.
This is a good sign because it suggests that sellers aren’t able to drive a stock very far south without bringing in buyers.
Two stocks posting new highs Tuesday fit that description.
Chipmaker Qorvo (QRVO) cleared a 72.52 buy point in a base-on-base pattern during Tuesday’s session, closing at 74.84. The base’s depth was less than 10%. Volume was strong.
A base-on-base pattern is partly defined by the previous pattern. Notice how the low in the current pattern stopped just above the high of the previous base. This is characteristic of a base on base.
Qorvo broke out of the previous base Feb. 1, popping above a 64.90 buy point. The stock gained almost 12% before retreating and starting work on the current consolidation. Because the gain did not reach 20%, the base count remains second stage.
Qorvo’s quarterly earnings have been lumpy (0%, 6%, 31% and down 18%), but the Street expects earnings in fiscal 2018 ending in March to rise 18%.
The midcap company has some concentration in revenue. Although that adds risk, it isn’t necessarily a bad thing. In fiscal 2016, one customer accounted for about 37% of revenue. The customer is widely believed to be Apple (AAPL).
The concentration could grow in the second half of this year, according to Qorvo. “We expect to expand our dollar content at our largest customer later this year,” said CEO Robert Bruggeworth at the earnings call May 4.
Another Shallow Pattern
SS&C Technologies (SSNC) has been trying to clear and hold above a 37.58 buy point in a 12% deep flat base. Volume was heavy Tuesday as the stock crossed above the entry. The stock closed still in buy range at 37.71.
The company provides software to the financial services industry.
SS&C has a Composite Rating of 94. The Composite Rating combines all five IBD ratings into a single number. A 94 means the stock is in the top sixth percentile.
Toll Brothers Up Despite Bad News For Sector
On Tuesday, homebuilders got some discouraging news. Housing starts and permits for April came in lower than expected. The homebuilder group, which among 197 industry groups was No. 5 going into Tuesday’s session, shook off the bad news and rose 0.8%, according to preliminary data.
Within the group, Toll Brothers (TOL) crawled above an eight-week, 6% deep consolidation. Volume was below average. The stock closed at 37.63.
Toll is expected to grow earnings 43% in fiscal 2017 ending in October. The Composite Rating is 90.