Major indexes continued to stage a healthy rebound, breakouts gained more steam, and a key Bitcoin-driven ETF showed more signs that a longer-term correction in the alternative digital currency may be in the works.
Bitcoin Investment Trust (GBTC), which staged a tremendous price run of more than 1,500% in 2017, plunged as much as 18.3% intraday before shaving a majority of those losses.
Yet shares in the Bitcoin-tracking exchange-traded note still dropped more than 7% to 1,607 and severely undercut the critical 50-day moving average for the first time since peaking at 3,522 in December. Bitcoin Investment had broken out on Nov. 22 from a large, deep cup with handle at 958.10 and gained more than 250% before topping. Concerns of South Korea mulling a move to ban cryptocurrency trading are apparently still weighing on traders.
At 2:45 p.m. ET, the Nasdaq composite, the leading major index in 2017 with a 28.2% gain, rose nearly 1.1%, while the S&P 500 practically matched that advance. The Dow Jones industrial average spurted 1.1% higher, helped by gains of 1 point or more in at least 12 of the 30 components.
Longtime Dow Jones industrial component IBM (IBM) staged a bullish gap up as shares rose more than 2% to 168.59 in volume running double its 50-day average. The stock has also risen past a 162.61 buy point in a first-stage saucer with handle.
This base is part of a long bottoming base process. The buy zone goes up to 170.74.
Optimism is rising among analysts that Big Blue will finally break its multiyear slump in revenues. Q4 profit, meanwhile, is expected to inch up 3% to $5.16 a share, which would be the biggest increase in four quarters.
IBM drums up a terrible Composite Rating of 42 on a scale of 1 to 99 in IBD Stock Checkup, but low Composite and other scores are typical for companies that have been lagging for years but are aiming at a real turnaround. On the positive side, a B- Accumulation/Distribution Rating points to net buying among fund managers in IBM over the past 13 weeks.
Buying only those stocks that show an Accumulation Rating of C+ or higher generally increases the odds of making money when buying a stock at the proper entry point.
The Dow Jones industrial average rallied 25.1% in 2017.
The Dow transports edged up 0.3%; the Russell 2000 was up almost 0.6%. Volume is running mildly lower on both exchanges following a distribution day, or session of unusually intense institutional selling, on both the Nasdaq and the S&P 500.
Top-ranking stocks as seen in IBD’s key stockpicking screens mostly thrived, with several hailing from the semiconductor and related sectors. Electronics-Semiconductor Equipment ranks first among 197 industry groups tracked by IBD with a 3.5% lift. Homebuilding, computer networking, leisure products and oil drilling stocks also led the upside with gains of 2% each.
Universal Display (OLED), No. 1 in the IBD 50, moved out of buy range as shares rolled nearly 3% higher to 204 in volume running more than 25% above normal levels.
The expert in organic light emitting diodes for a range of electronic devices broke out past a 192.85 entry in a six-week cup without handle on Jan. 8 and has acted well since then. The 5% buy zone goes up to 202.49.
Universal Display has sported four quarters in a row of excellent top and bottom-line growth. The Ewing, N.J., firm earned 28 cents a share in the third quarter vs. a 3-cent loss a year earlier. That followed EPS increases of 41%, 450% and 115%.
No wonder, then, that Universal Display gets a top-notch 99 Earnings Per Share Rating from IBD, which means that the company’s profit growth over the past three to five years and in recent quarters is superior to 99% of all companies in IBD’s database.
The Street expects earnings in Q4 to rise 53% to 84 cents a share on a 33% jump in revenue to $99.3 million. In Q1 of this year, Universal Display is seen growing earnings 41% to 31 cents a share and revenue up 20% to $66.9 million.
Universal Display is ranked No. 1 in the IBD 50 and has a relatively small float of 41 million shares out of 47 million shares outstanding. A small float is bullish for growth stock investors, as it helps constrain supply of shares, one of tenets of IBD’s CAN SLIM seven-point selection system for outstanding stocks. Plus, it takes fresh demand from only a few institutional investors, including hedge funds, pensions, banks and sovereign wealth funds, amid a limited supply of shares readily available for sale, to send a stock into breakout mode and into new highs.
Universal Display is now a mid-cap stock with a value of $9.6 billion. Mutual funds and hedge funds owning shares in the stock have climbed from a combined 344 funds at the end of 2016 to 416 at the end of last year.
Laser maker Coherent (COHR) (breakout at 320.83), scientific instruments maker IPG Photonics (IPGP) (cleared a cup at 248.33), semiconductor lithography systems expert ASML(ASML) (186.47 buy point in a solid flat base) have also broken out and shown positive action.
Lam Research (LRCX), a huge winner since 2015, is building a base. Watch to see if shares can remain above the key 50-day moving average. If it does, it would boost the chances that the wafer cleaning and etching systems supplier can continue to flesh out the right side of a potential new base.
Lam had cleared a 170.10 entry in a good flat base on Sept. 11 and rallied 29% before correcting in price. One of IBD’s key sell rules is to take at least partial gains when a stock breaks out and advances at least 20% to 25% from the proper entry.
Going back to Bitcoin Investment Trust, IBD noted in a prior Stock Market Today column how a definitive cross below the 10-day moving average offers a good exit point for short-term traders. Bitcoin Investment Trust violated its 10-day line on Dec. 20, just two days after it posted a closing peak of 3,463.
Given the climax-run-style move that it made in mid-December, following strong gains earlier in the year, it’s sensible to expect that it will take weeks, if not months, for the ETF to set up another proper buy point.
Bitcoin, itself, took years to digest strong gains after it broke out in October 2013 and ran up from a breakout near 120 to a peak of 1,087 just two months later, an 800% gain in just two months. It took more than three years of basing before Bitcoin eclipsed that high.