Stocks Hit Hard, But Tech Leaders Steady; 5 Reasons To Keep Holding Apple

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Stocks got hammered in afternoon trading Thursday as investors appeared to feel discouragement over the Senate plan to go slow in cutting U.S. corporate taxes.

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At 2 p.m. ET, the Nasdaq cut some of its early losses, yet still paced the broad decline, falling 0.9%. At one point the composite index lost more than 1.4%. The Nasdaq 100-tracking PowerShares QQQ Trust ( QQQ ) mirrored the 1.4% decline.

At least 13 of the 30 components in the Dow Jones industrial average dropped 1 point or more, pushing the popular average down nearly 1%. They included Goldman Sachs ( GS ) (still above its 50-day moving average, a good sign), McDonald's ( MCD ) (a gap down, but still well above its 50-day line, also good), and Caterpillar ( CAT ) (in a strong uptrend, no defense-type sell signals for now).

The S&P 500, down almost 1.1% early, cut its decline to less than 0.6%.

Breadth is negative across the board; at one point, losing issues outmatched winners by a nearly 5-2 margin on both the NYSE and the Nasdaq.

The S&P SmallCap 600 was off 0.5%, nearly cutting early losses in half, yet extending its weekly loss to nearly 1%. The 600 was also briefely back below its critical 50-day moving average.

Chip equipment firms led the downside among tech stocks, falling nearly 4% as a group. Lam Research ( LRCX ), a member of IBD Big Cap 20 , currently ranked No. 2, dropped more than 3% to 204.32 in mildly above average turnover. The specialist in wafer etching systems still trades well above its fast-rising 50-day moving average. Lam's most recent breakout was at 170.10.

Elsewhere in the market, other leading industry groups were not immune to the decline. Among the top 20 ranking within IBD's 197 industry groups and subgroups, truck transport, residential building, educational software, automation and material handling machinery all fell at least 1%. Industries bucking the decline included mail order retailing, department store chains, apparel and shoe retailing and long term medical care, each up more than 1%.

Apple (AAPL), meanwhile, is holding up quite well, despite at one point falling as much as 1.7% to an intraday low of 173.14. While the stock is on course to snap a five-day win streak, the iPhone giant has a nice cushion of gains since surging past a 160.97 entry in a brand-new cup with handle.

Volume is running around 10% above usual levels.

Apple is still up more than 46% since breaking out of a first-stage cup with handle at 118.12 back on Jan. 6-9.

There are at least five reasons why longer-term holders can sit and watch to see if Apple can rally another 20% from its latest entry. One is the fact that despite a temporary pullback in late September, the stock did not trigger any IBD sell rules.

For instance, it did not fall 7%-8% below a prior flat-base buy point of 156.75. This is the golden rule of investing .

Four more reasons to keep holding:

One, growth is accelerating, and CFO Luca Maestri made it 100% clear in last week's news release: "Apple's year-over-year revenue growth rate accelerated for the fourth consecutive quarter and drove EPS growth of 24% in the September quarter," he said.

IBD's Stock Market Today columns, since November of last year, have frequently noted that the prospects of a re-acceleration in top- and bottom-line growth in the consumer electronics and digital services giant was very good.

Apple's revenue jumped 12% to $52.58 billion, up from gains of 3%, 5% and 7% in the prior three quarters. After-tax margin boosted 120 basis points higher to 20.4%.

Two, some highly rated mutual funds are establishing new positions in Apple, including at least four funds with an A or A+ for 36-month performance by IBD, as of the second quarter of this year. Strong institutional buying is critical to a stock's long-term rise.

Three, Apple's Composite Rating continues to improve on Stock Checkup , recently jumping to a very respectable 93 on a scale of 1 to 99. On Jan. 1, the Composite was 57.

Four, Apple's relative strength line has jumped into new high ground. See the RS line, painted in blue, on any IBD chart or on MarketSmith. A rising RS line means a stock is outperforming the S&P 500.

Microsoft (MSFT) is down around 0.5% to 84.09 in nearly flat turnover. Watch to see if the big player in Big Data, cloud computing services and business software can hold its recent bullish gap up in price.

The stock is still 15% above a 72.99 entry in a solid flat base .

That flat base began during a decline in the week ended June 9 and lasted five weeks, the minimum length required for this sideways-moving chart pattern. The flattish action indicates that big investors are reluctant to dump massive quantities of shares back into the market.

In Microsoft's flat base, the correction from head to toe was a very mild 6.6%.

Snapchat site operator Snap (SNAP), noted in a Sept. 20 Stock Market Today article regarding the prospects of its shares falling below 10 a share, lopped off another 4% to 12.38 in volume running double its 50-day average. The social media network got slammed Wednesday after reporting its smallest year-over-year revenue increase since going public March 2.

Revenue rose 62% to $207.9 million, but that's a far slower gain vs. the increases of 406%, 286% and 153% in the prior three quarters.

The company lost 14 cents a share in Q3, bigger than the 9-cent loss a year ago.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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