The Nasdaq and the software sector dominated the upside on the stock market today, on the back of nice quarterly results from the likes of new innovators such as Splunk (SPLK) and Autodesk (ADSK). The latter’s decision to adopt a subscription-based revenue model is clearly showing nice traction.
At around 2:15 p.m. ET, the Nasdaq composite commanded the biggest gains among major indexes, holding on to a 0.8% gain and stroking new all-time highs. A speech by Federal Reserve chair Jerome Powell at the Jackson Hole, Wyo., summit of central bank governors sounded a dovish tone in terms of how fast the U.S. central bank will raise the cost of money in the near term.
Currently, the fed funds rate for overnight loans to Wall Street banks targets a range of 1.75%-2%. The futures market widely expects another quarter-point hike in this rate at the Federal Reserve’s Sept. 25-26 meeting. But a 25-basis point hike in December is still uncertain.
At 7949, the tech-rich index now holds a 15.1% year-to-date gain.
The S&P 500 and Dow Jones industrial average harbored gains of nearly 0.6%. The small-cap Russell 2000 advanced nearly 0.5%.
At 1725, the Russell 2000 still is beating the large-cap indexes with a 12.3% gain since Jan. 1.
Nasdaq Leader Breaks Out — Again
Splunk, following better-than-expected results, gapped up at the open and soared past a 121.74 correct buy point in a base that actually shows the features of a double bottom too. The middle peak of 108.33, in between two lows within the base, offered an early entry at 108.43.
Trading near 125, the machine data analytics innovator has now generated a 79% gain since the stock broke out of a good base on base at 69.71 on Nov. 8 last year.
Go to a MarketSmith historical daily chart and check out the price-and-volume action on Nov. 8, 2017. You’ll see that turnover expanded more than 60% above Splunk’s 50-day average volume at the time. Such robust trading signifies the big boys and girls of the market — mutual funds, banks, pensions, hedge funds, insurers — are crowding into the stock.
Autodesk Clears A New Buy Point
Autodesk crushed the bears, soaring more than 14% and spiking past a 143.04 flat-base entry.
The industrial design software giant posted another quarterly turnaround as profits came in at 19 cents a share for the July-ended fiscal second quarter, smashing the consensus view by 3 cents. It lost 11 cents a share in the year-ago period.
Autodesk’s revenue rose 22% to $611.7 million, marking continued acceleration. In the year-ago period, revenue fell 9%, but then has picked up 5%, 16% and 15% in the prior three quarters.
Other software-related stocks leading the way up included Zscaler (ZS), DocuSign (DOCU) and Palo Alto Networks (PANW). The first two companies were highlighted in a recent IBD Weekly feature on top IPO stocks in 2018.
Zscaler is moving past a 44.08 buy point in a 10-week base. One bullish element in the chart pattern: the weekly chart shows just one down week in heavy turnover within the base itself.
A second bullish element: the relative strength line, painted in blue in all IBD charts, is jetting into new high ground.
DocuSign has cleared a 62.25 ideal buy point in its eight-week cup with handle.
To find the right entry point, add 10 cents to the high within DocuSign’s handle, or 62.15.
The midpoint of the handle, 58.73, exceeds the midpoint of the cup portion, or 58.43. That’s bullish. Notice, too, how the stock found institutional buying support at it tested the 10-week moving average while forming the right side of the cup base.
Palo Alto Stock Breaks Out
Palo Alto, one of the top players in data network security, surged past a 219.48 buy point in a flat base and is within buy range.
The Santa Clara, Calif., innovator in next-generation computer network firewalls reports fiscal fourth-quarter results on Sept. 6 after the close. The Street expects another round of robust double-digit increases with earnings rising 27% to $1.17 a share and revenue up 24% to $632.7 million.
Palo Alto has posted four quarters in a row of revenue that exceeded $500 million. But meeting that consensus estimate would post a new record in total quarterly revenue.
Keep in mind that it’s getting tougher for Palo Alto to match its prior record of strong growth on the bottom line.
Over the past five quarters, earnings have lifted 33%, 39%, 35%, 37% and 62% vs. year-ago levels. The average EPS gain over that period: a superb 41%.
So, a 27% EPS increase for the July-ended fiscal fourth quarter would mark a considerable slowdown in growth. However, the Street is also currently predicting a 41% jump in earnings for fiscal Q1 of the next fiscal year to $1.04 a share. In other words, Palo Alto may be poised to resume even stronger increases.
On an annual basis, analysts see Palo Alto’s earnings rising 43% to a record $3.88 a share in FY 2018 (ended in July) and up 25% to $4.84 a share in FY 2019.
Human Capital Management Stocks Stay Firm
In other software stocks, HR expert and Leaderboard member Workday (WDAY) barreled ahead another 3.9% to 151.37. That boosted the stock’s gain past a 137.53 buy point to 10%.
Workday also presented an early buy point when it cleared a modified Shakeout + 3 entry near 129.65.
Paycom Software (PAYC), also a winning stock in IBD Leaderboard, jumped another 2.7% to 150.17, good for a new high. The Oklahoma City-based firm has now gained nearly 30% from a breakout point at 115.64.
Such a gain justifies taking at least partial profits. Taking many profits when a stock rises 20% to 25% from the correct buy point allows a portfolio manager to raise cash that can be used to buy a new stock leader.
Crude Oil Advances Again
West Texas Intermediate oil futures gained 1.2% to $68.66 a barrel, pushing their year-to-date gain to 13.5%. The dollar fell to $1.1625 against the euro.
