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The major indexes remained mixed in relatively quiet trading Friday afternoon, but Apple (AAPL) flashed a sell signal for short-term investors and traders who had capitalized on its recent two buy points: one at 118.12, and another at 141.12.
Shares are cutting losses as of 2:30 pm ET, down around 0.98, or less than 0.7%, to 143.31. Intraday, Apple hit a low of 142.20. Volume is heavy but now running around less than 30% above usual levels. Apple’s 50-day average turnover is 27.2 million shares.
With less than 90 minutes left in Friday’s quadruple-witching session, the Nasdaq composite slipped 0.2% while the S&P 500 was practically at the break-even level. The Dow Jones industrial average inched a few points higher and got as high as 21,372 in the stock market today.
Volume is running higher vs. the same time Thursday on both main exchanges, due in large part to the expiring of weekly and monthly options on stocks and indexes.
The sell-off in small caps worsened, however, with the S&P SmallCap 600 down more than 0.9%. At 850.16, the 600 looked headed for a weekly decline of around 1.6%.
Back to Apple, the primary reason for selling the consumer technology innovator now is that, as seen on a weekly chart, the iPhone maker’s slide is deep at more than 4%. Plus volume is not only above average but has accelerated vs. the prior week.
Weekly volume is on track to be the largest since the week ended Feb. 3, a sign that hedge funds, mutual funds, banks, pensions and the like are anxiously taking gains and hitting the exits hard.
Of course, a rebound is still very possible, but that may also depend on a resurgence of buying in tech stocks on the whole. On June 9, IBD downgraded its current outlook for the equities market to “Uptrend under pressure” from “Confirmed uptrend.” As noted in IBD’s The Big Picture, this means it’s still OK to buy stocks, but the risk of an immediate loss is greater than normal.
Apple broke out of a first-stage bottoming base in the form of a beautiful 13-week cup with handle on Jan. 6-9. That base furnished the 118.12 entry (10 cents above the handle’s intraday high of 118.02). A gain of 20% to 25% past such a proper buy point warrants the move to sell shares and take some profits. Apple rallied more than that; at 156.65, it gained as much as 34%.
For those who grabbed shares when Apple moved past a three-weeks-tight follow-on entry at 141.12, it’s also time to sell shares to avoid a round trip of minor gains. Apple’s 3-weeks-tight pattern began to form in the week ended March 3; in the next two weeks, Apple closed within 1% to 1.5% of the prior week, showing very tight action. That 3-weeks-tight pattern eventually became a 4-weeks-tight when in the week ended March 24, Apple rose just 0.5% for the week.
Volume was below average in each of those weeks, suggesting that fund managers back then were happy to sit on their shares.
Apple, now more than 8% below its 156.65 peak, would still have to fall roughly 12% to come face to face with its rising long-term 200-day moving average. For long-term share owners who are sitting on a large profit cushion, a potential 200-day line test would be of particular interest.
Not all techs are behaving like Apple.
The former is holding its own after a recent downgrade by research analysts last week. Shares are down less than 0.2% at 152.16, holding above the psychologically key 150 level. The GPU king had busted past a 121.02 cup-type-base entry point after reporting huge gains in fiscal Q1 earnings (up 126% to 79 cents a share) and revenue (up 48% to $1.94 billion).
Broadcom remains on the north side of its 50-day line. The stock, down 1.46 to 236.53, is back in buy range from a recent breakout from an eight-week flat base at 227.85. The 5% chase zone extends up to 239.24. But keep in mind that the diversified chipmaker is on course for a second straight weekly drop in above-average turnover.
Broadcom (98 Composite Rating, 99 EPS, 89 RS) has also been a whirlwind winner for nearly four years. Its first major breakout came in the week ended Sept. 20, 2014, when the stock propelled past a 39.84 entry, or 10 cents above the high in a long base-on-base pattern. In the second base, Broadcom formed a nine-week flat base with a high of 39.74. Since then, the rally has expanded 543%. (Use a MarketSmith chart to see the historical weekly chart and use its base-counting premium feature.)
IBD’s TAKE: Broadcom remains a true market leader due to strong stock price action, excellent fundamentals, and vibrant institutional sponsorship. A quick and easy way to track these parameters is by using IBD Stock Checkup tool, available to all Investors.com subscribers.
On the downside, management and government project consultant Booz Allen Hamilton (BAH) gapped down 7.17, or 18%, to 32.16, more than giving up its decent short-term gains from a recent breakout past 36.79. Booz is reportedly facing accusations of false accounting practices.
The May 22 breakout in heavy volume was clean, and the stock, on a technical basis, did not furnish any clues that such a bad drop was in the wings. How could a CAN SLIM-focused stock trader avoid such a big drop by not buying the stock on the breakout?
One answer could be found in the fact that Booz’s quarterly results, while improving, really do not meet the minimum increases of 25% or more for both earnings per share and revenue. One could have skipped Booz and search for a name with stronger growth.
In the past four quarters, the McLean, Va., firm saw earnings changes of +5%, +18%, -7% and +10% vs. year-ago levels, as revenue rose 5%, 5%, 7% and 11%.
While such numbers may be considered acceptable for a Dow 30-type large- or megacap firm, Booz is a midcap company with a market value of $4.8 billion. At its 52-week high of 39.67, the market cap was $5.9 billion.