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How to Trade Some of the Most Conspicuous Price Phenomena: Gaps and Windows

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Overview

“Gaps” (as they are called in the West) and “windows” (their Japanese counterparts) have always attracted the attention of technicians – most probably because they are nearly impossible to be missed on a price chart. After all, a trading session lying completely outside of the prior day’s range, which is what gaps and windows are by definition, must carry some kind of predictive power. However, a critical question remains – are gaps and windows indicative of the beginning of a new trend (as it was the case for AAPL in Figure 1), or are they simply an overreaction and are subsequently quickly filled (as it was the case for MMM in Figure 2)? Notice how in the former case the gap stayed opened (and it still is) for more than a year, whereas in the latter case the gap was filled/closed within two months (i.e. subsequent price action in September completely overlapped the range of the gap).

Figure 1. AAPL Daily

Figure 2. MMM Daily

Note, from here on, only the term “gap” is used, even though there is an important difference between the two – “gaps” look at intraday prices when determining if they are “filled”, whereas “windows” only look at “closing” prices. At the bottom of the article, you can find references to several works on the price phenomenon, in which the difference between the two variations is discussed in-depth.

Given that gaps occur quite frequently (see referenced materials for details), it is easy to understand how any “gap” strategy can be depicted to have predictive power. Most traditional books on technical analysis include a list of gap trading strategies followed by a few stellar charts that are supposed to prove the strategies’ validity (charts similar to Figures 1 & 2). Furthermore, given gaps’ conspicuous nature, most traditional trading strategies have their “entry” on the day the gap occurs (or Gap Day). For example, proponents of gaps being a continuation pattern would suggest that taking a position in the direction of the gap on Gap Day is profitable. On the other hand, technical analysts who believe that “all gaps get filled” suggest taking a position on Gap Day in the opposite direction of the gap. In both cases, action is taken on Gap Day.

After trading and analyzing gaps for many years, I was certain that traditional theories do not work the way they are described to. Probably the most illogical stipulation made by various technical authors was that “the gap itself should serve as support or resistance” and “once filled, gaps become insignificant”. On the contrary, I had found that the gap itself is rarely a strong support or resistance and that very often the most significant gaps are those that have already been filled. This is when, in 2016, I developed a new theory on gaps (“K-Divergence), which significantly “diverges” from traditional theories.

Before discussing what the K-Divergence theory entails, an explanation of the most popular traditional theories is presented.

Traditional Gap Theories

1. A gap is a continuation pattern.

Strategy – taking a position, on Gap Day, in the direction of the gap.

This theory is based on the idea that if, on any given day, prices jump/fall significantly enough to never touch the prior session’s price range, something significant must have occurred and changed the market’s sentiment on the company. In this case, on Gap Day, prices are assumed to reflect the changing opinion of the stock only partially, and thus, further movement in the direction of the gap is expected. In the case of AAPL’s gap (Figure 1), on February 1, 2017, the company reported better-than-expected 1Q17 earnings on the heels of record breaking iPhone sales. Subsequently, the price continued moving higher in a swift fashion, leaving the up-gap behind it. Often, proponents of this theory use support and resistance levels, or technical indicators, as a confirmation that the gap has occurred at an important juncture and that it can be trusted. For example, zooming out and looking at the stock’s price action since 2015 (Figure 3), traders who utilize gaps as continuation patterns can claim that “the breakout occurred above the interim high of the multiple bottom formation, and therefore, carried high predictive power”.

Figure 3. AAPL 2-Day Chart

2. A gap is an overreaction.

Strategy – taking a position, on Gap Day, in the opposite direction of the gap

Advocates of this theory are convinced that gaps are a result of market participants overreacting to news (or “noise”) and that once participation subsides, the gap is expected to get filled. The famous adage “all gaps get filled” is often used in an attempt to support this supposition. Similar to the previous strategy, support/resistance levels and technical indicators are expected to provide further confirmation if the particular gap is to be filled. For example, looking once again at the MMM chart (2-day chart – Figure 4), one may say that the down-gap took prices close to a well-established uptrend (green trendline) and to a key moving average (100 SMA – yellow line). Also, to further support the thesis that prices will reverse, one may point to the positive reversal in RSI (not to be confused with a positive divergence), which indicated that the correction has taken the stock to oversold levels during the uptrend (i.e. RSI making a lower low, while prices making a higher low).

Figure 4. MMM 2-Day Chart

The above two strategies are a perfect example of technical analysis being more of an “art” than “science”, where it is up to the technician’s discretion to decide what action to take after observing a gap. While, after testing both strategies (see K-Divergence section), I found that neither the simple continuation nor reversal strategies are profitable on a systematic basis, there are definitely specific situations where the probability of a gap reversing is higher and vice versa. Unfortunately, the next strategy, the one found in almost any TA book, is one of the reasons why technical analysis has a bad name among most non-technicians.

3. A gap could be either a continuation pattern or an overreaction based on its “classification”.

Strategy – an ambiguous one based on hindsight

As it had become evident that gaps cannot be all “continuation patterns” or “overreactions”, the popular gap classification system was born – where gaps are categorized as either “breakaway”, “continuation/runaway”, “exhaustion” and “common”. This classification is based on two criteria – 1) the location of the gap relative to preceding price action and 2) whether the gap gets filled or not. However, as one can imagine, there is no way to know on Gap Day whether a gap will be filled in the future. That is, the classification system is based on hindsight. Let’s prove this point by looking at an example. Figure 5 shows an up-gap after a prolonged uptrend. Based on the widely-used classification system this gap can be “runaway” (if the gap does not get filled and prices continue higher), “exhaustion” (if prices quickly reverse, fill the gap and continue lower) or even “common” (if prices fill the gap but do not reverse or consolidate). Given the colour of the candle and the long upper wick, it seems like it is an “exhaustion” gap, right?

Figure 5. Daily Chart (real chart, ticker hidden)

Clearly, it is only in hindsight that this gap can be classified. In this case, the gap turned out to be of the “runaway” type as it did not get filled and the stock (MSFT) continued propelling higher (Figure 6). The point is, the classification system is futile for making decisions on Gap Day.

Figure 6. MSFT Daily Chart

K-Divergence (K-Div) Theory

4. Most gaps occur after prices have moved away from a significant support or resistance levels.

Strategy – taking a position in the direction of the gap, only after prices have returned to pre-gap levels

More specifically, the theory suggests that in most cases an up-gap transpires after prices have already jumped from a key support level and a down-gap – after prices have already fallen from a key resistance level. The theory is based on the premise that before a gap occurs prices have already reached a key level and have bounced from it. It is only later on, after most market participants agree on the direction of the next move and take positions in the same direction that gaps occur. This means that it is not the gap itself that should serve as a support or resistance, but rather the range of prices preceding it (pre-gap range). The most important implications of the theory are – 1) the gap itself should not serve as support or resistance and 2) a filled gap is not “insignificant”.

So why does the K-Divergence make sense from a technical point of view? After all, if prices gapped due to “news” that nobody was aware of, this would mean that gaps are nothing more than prices adjusting to the new information. Any such conclusion should render fundamental and technical analysis useless, for it would imply that no analyst is able to purchase a security before news gets disseminated. On the contrary, the K-Divergence assumes that the most astute market participants (i.e. the best fundamental and technical analysts, quants and even “insiders”) are able to trade in advance of the gap occurring. Therefore, true support and resistance levels lie prior to the gap transpiring and subsequent filling of the gap does not render it “insignificant”.  It is best to illustrate this with an example. I will use one of my most recent predictions based on the theory, which was sent to one of my clients. First, I will describe the rational in detail with an updated chart (Figure 7), which will be followed by screenshots from the day the signal was given.

After the close on February 1, 2018, Google reported its 4Q18. The next day, the stock opened sharply lower and continued falling into the close (Feb 2 – Down Gap in Figure 7). The stock continued falling along with the market until the Feb 9 low was set. Subsequently, while NASDAQ was making new highs in early March, GOOG reached the pre-gap range (Bearish K-Divergence Range – violet horizontal trendlines) and started stalling. Due to the strong bounce by the broader markets, the stock recovered and filled the gap. However, when the stock started trading at the pre-gap range, market participants were given a second chance to sell the stock for the same price it was trading at before the 4Q18 earnings were released. Price action confirmed the bearishness of the set-up (GOOG March 13 & 16 – Figures 8 & 9).

Figure 7. GOOG Daily Chart

Figure 8. GOOG March 13

Figure 9. GOOG March 16

In order to validate the theory, I developed two trading strategies based on it (one with the gap and one with the window variation) and backtested them along with 5 variations of the traditional gap strategies discussed above. Figure 10 shows the 1-, 2-, 5-, 10-, 20-, 30- and 44-day period returns of the 7 strategies (#6 & 7 being the two based on the K-Divergence theory) and Figure 11 shows the annualized returns for the those same periods. The backtest took into account a total of 14,219 gaps over nearly a 2-year period.

Figure 10. 1-, 2-, 5-, 10-, 20-, 30- and 44-day period returns

Figure 11. Annualized 1-, 2-, 5-, 10-, 20-, 30- and 44-day period returns

The two K-Div strategies were profitable throughout all periods. The only other consistently profitable strategy was “Fading the Gap” strategy which entailed taking a position in the opposite direction of the gap on Gap Day, but closing it immediately after the gap was filled. This once again goes against traditional theories which suggest that once a gap is filled, prices should continue going against the gap’s direction as, supposedly, an important support/resistance was breached.

It is noteworthy that the K-Divergence theory does not suggest that all gaps have occurred after important support/resistance levels or that they can all be traded profitably in a similar fashion as the GOOG example. Rather, it provides a framework for analyzing the gap phenomenon, on that all active investors/traders should believe in, which assumes that some market participants are able to act ahead of major moves (i.e. prior to the appearance of gaps). Furthermore, it eliminates the use of the “hindsight” gap classification system.

For more on gaps, I recommend reading Julie R. Dahlquist and Richard J. Bauer’s “Technical Analysis of Gaps” book, where they conduct, one of the first on the topic, objective investigations of the phenomenon. For a much more in-depth coverage of the K-Divergence and my research on gaps, you can view my thesis for the Master of Financial Technical Analysis (MFTA) Program, published in the 2018 IFTA Annual Journal.

Conclusion

In the future, regardless of whether you look for opportunities to trade gaps on Gap Day (strategies 1 & 2) or decide to use the K-Divergence as part of your trading arsenal, I hope this article would make you think more critically the next time you hear terms such as the “runaway” gap. And even more importantly, will push you to analyze gaps even after they have been filled, and according to traditional theory, have become insignificant.

Happy gap trading.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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    Analysis

    The Air Transportation Market is Growing. Where to Invest?

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    By Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets

    Today, practically every person who has internet access knows what Amazon and Alibaba are. These are the world’s largest internet-companies who, for the sale of their products, also use famous platforms like AliExpress and eBay.

    Their total revenue constantly has been increasing year after year.

    And as long as these companies are oriented toward international markets, 95% of the goods they sell are delivered by air.

    Here we could pay attention to the aircraft manufacturers, as the air transportation growth rate will lead to increased demand for new aircraft. Boeing has conducted research according to which the demand for pilots, aircraft technicians and flight attendants in the world is growing, and the biggest activity is expected in the Asia-Pacific Region and in North America.

    This week, the news feeds have been peppered with headlines on the current shortage of pilots in airline companies, and this demand will be hard to satisfy in the nearest 10 years.

    Last week, Ryanair pilots went on strike demanding a salary raise and improved improved working conditions.

    Consequently, investors have started showing interest in airline companies. Also, rumor has it that Warren Buffett is going to invest in one such company (or in several), but it has not yet been indicated which one exactly. According to some reports, it may be Southwest Airlines Co. (NYSE: LUV).

    Southwest Airlines Co. is an American low-cost airline founded in 1971. It is the biggest low-cost carrier in the United States and in the world by the number of transported passengers. As of December 2017, there were 706 Boeing 737 aircraft in the company. By its financial performance, the company looks attractive for long-term investments. For example, profitability has reached 16.90%. The Short Float ratio is very low – only 1.82% and the debt to equity ratio is 0.48.

    Based only on the rumors, Southwest Airlines stocks have left the consolidation range between the levels of $50.00 and $53.50, having broken out the 200-day moving average and indicating a possible formation of an ascending trend on D1. The closest resistance levels are at $62 and $67.

    On W1, a stable uptrend is visible and the broken out levels are becoming a support for underlying price.

    It is unclear precisely which company Warren Buffett will direct his attention to, so we can analyze the financial standing of other airline companies, which can become potentially interesting investments.

    Delta Air Lines (NYSE: DAL) is one of the largest airlines in the world. Its destinations network includes countries in Asia, Europe, North, South America and the Caribbean region. As of January 2018, Delta Air Lines had 853 aircraft.

    The financial performance of this company over the last 4 years shows a drop in income.

    Profitability is 7.7%, the debt to equity ratio is 0.67 and the Short Float ratio is 2.65%.

    According to technical analysis, the price is trading near the 200-day moving average, constantly breaking it out in both ways. Since December 2017 the resistance has formed on the chart, as the stock still won’t break out. In this situation, the breakout of $57.00 can be a signal for the further growth of the price of the stocks, but, at the same time, it has to be confirmed by good Q3 results.

    On W1, there is still an uptrend, but we can already see a more serious resistance area from 2015 in the range between $53 and 56. The price is now in this range. The stock already tried to break out of this resistance in January 2018, but is has never managed to secure its position above this resistance. Here there is a high chance of the price falling to the support at $40. Currently, the potential drop of the price of the stock prevails over the growth.

    The next airline company which we can direct our attention to is American Airlines, Inc. It is also one of the largest airline carriers in the world with headquarters in Fort Worth (Texas). The aircraft fleet of the company amounts to 958 aircraft in total.

    Unfortunately, recently the financial performance of this airline has not been perfect either.

    The debt to equity ratio (25.16) clearly demonstrates how risky this asset may be. That means that the company has 25 times more debts than the means to clear these debts. In this situation, the slightest decline of aviation operations may seriously hurt the company.

    It should be noted that American Airlines has the “youngest” aircraft fleet now, as the company has invested its money exactly in the aircraft, which has caused such debts. Therefore, the company decided to risk, bu investors have not appreciated it, and thus the price of the stocks in 2018 was constantly falling.

    Currently, the stock is in a downtrend. The price is gradually dropping within the descending channel, breaking out the support levels. However, near the level of $36 there has appeared a surge in rise, which indicates a possible forming of a strong support.

    This can be due to rumors about Buffett’s interest towards the airline companies: his fund has now about $100 billion of available cash and a part of it will get to the market. Overall, the stocks of American Airlines seem to be a very risky investment.

    There is another large airline company, which may be interesting from the point of view of investments: United Continental Holdings.

    United Continental Holdings (NYSE: UAL) is the fourth largest airline company in the United States. It appeared out of the merger of United Airlines and Continental Airlines in 2010. As of June 2018, the aircraft fleet of United Continental Holdings amounts to 716 aircraft. Also, as in the two previously described airline companies, the most successful financial year was 2015. According to those results, profits reached $7.34 billion.

    The Short Float ratio is 5.20%; the debt of the airline is 1.62 times bigger than its internal funds.

    On D1, the technical analysis indicates an uptrend, as the price is now above the 200-day moving average and has secured its position above $80. In this situation, the further growth of the price cannot be excluded.

    On W1, the stock also shows a stable uptrend trend and is currently trading near its historical maximums.

    Thus, the technical analysis indicates a good growth potential for this stock, but the possibility of the correction of the price to $75 cannot be excluded either.

    Having summarized the data on the revenue, we can see the big picture in the airline transportation market for 4 airlines.

    American Airlines has lost the most income, while Southwest Airlines has been constantly increasing its profit.

    The rest of the data indicates that the riskiest assets is American Airlines – its debt is the biggest out of all the 4 companies, its profitability is low and its Short Float is high.

    To sum up, for the nearest years Southwest Airlines looks the most attractive investment-wise.

    Amid all these data, Southwest Airlines noticeably stands out – all the rest have not been able to restore the previous revenue level after 2015. The fact of the matter is that Southwest Airlines has concentrated on low-cost transportation and this decision turned out to be the right one. If Buffett’s fund does buy Southwest stocks, this may become a very good investment for the coming years. Nevertheless, even without it, the expected growth of the passenger throughput will only be increasing the profit of this company and, consequently, the price of its stocks.

    You should not consider this article as a guideline to follow in any way – this is only information for analysis.

     

    Disclaimer

    Any forecasts contained herein are based on the authors’ particular opinion. This analysis may not be treated as trading advice. RoboMarkets bears no responsibility for trading results based on trading recommendations and reviews contained herein.

    Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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    4.4 stars on average, based on 6 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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    Analysis

    Tesla: Even Record Losses Cannot Stop the Stock’s Growth

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    By: Dmitriy Gurkovskiy, Chief Analyst at RoboMarkets.

    About two weeks ago, we published an article on Tesla and its future prospects, but today we will talk about this company once again.

    On August 1, Tesla reported on second-quarter financials. The results are sad – the losses of the company are topping record levels.

    The second-quarter losses reached $718 million USD, and compared to Q2 2017 they have gone up more than two times. If we look closer at the dynamics of what is currently happening, we will see that the growth of the losses is gradually slowing down and, at the same time, the overall income of the company is growing.

    From this perspective, the future looks quite bright – if it goes on like that, the company will very soon be able to become profitable. As a result, amid the growing losses, the price of Tesla’s stock has increased by more than 20%. Here, the situation is exactly the opposite with regard to that of Facebook, whose share price has fallen by 20% despite massive profit growth. Tesla investors have paid attention not to the growing losses, but to the promises of Elon Musk to reach profitability in the next two quarters of the year.

    Share prices have been pushed higher by another growth accelerator as well, which may later lead to an even bigger increase in price.

    The short float ratio for Tesla shares is 27.38% and it demonstrates that every third investor is going short. Such an impressive growth has naturally provoked the closing of short positions. According to some reports, the losses of the bears on Tesla shares reached $2 billion USD last week, and many have not completed their transactions yet hoping for the price to pull back in order to reduce the present losses. But if the decline does not follow, they will again become “clean buyers”, pushing the stock price further up.

    Tesla presents a unique case for Wall Street; if we analyze its financial indicators, we will see that one absolutely should not invest in a company with such a high short float ratio.

    Let us compare Tesla with Ford – one of the leading car manufacturers in the world. The capitalization of Tesla is already 1.5 times bigger than that of Ford.

    The ratio of debt of capital for Tesla is 2.42, meanwhile the same ratio for Ford is even worse – 4.19. This being said, the profitability of Ford is 4.30% and that of Tesla is in the minus and amounts to -18.80%.

    Despite positive quarterly results, Ford shares cannot form an ascending trend and are trading at $10 USD. The decline had been forecast even before the reports on Ford shares were published in the article in June.

    At the same time, amid the growing losses, Tesla stocks are in an uptrend.

    There are 23 times more outstanding shares of Ford than those of Tesla. If, in this situation, we divide the price of Tesla shares by 23, the result will be that one share costs about $15 USD. In other words, even in the case of such comparison we see that the shares of the company are overpriced, and if we add up the debts and profitability, it will become clear why Tesla’s short float ratio is so high.

    However, there is one more detail that the company had concealed when the report was published. In the second quarter Tesla has moved over to a new income report standard of ASC 606 which has provokedartificial revenue growth. When the growth of the revenue was being compared to the same in the Q2 2017, the values have not been adjusted according to the new rules and it has not been indicated that the calculation has been made according to the old standard. Thus, the company has misled investors by this data and it does not seem possible to calculate the real growth of the revenue in the second quarter, as Tesla has not published any detailed information on the adjustments which had influenced this report.

    If we look at the diagram at the beginning of this article, we notice the positive dynamics of  revenue. But if we look closer, we will see that the situation is completely different – the revenue values have in fact been inflated, while it is impossible to calculate the real values at the moment. It turns out that only the third-quarter report will reveal the real dynamics of Tesla’s revenue. As of yet, only the fact of the growing losses has been confirmed. On the basis of this information, at the moment of the publication of the statistics not everyone understood what these numbers reflect. This is why the demand for Tesla shares has grown so sharply.

    In light of this, it would be logical if investors reconsider the situation and begin unloading Tesla shares. But, historically, shares of Tesla have long ago stopped being governed by logic, which is why the sellers can once again experience losses. Along with them, there will be more ill-wishers which are predicting an imminent collapse of Tesla and are trying to persuade everyone to sell their Tesla shares. Possibly, their predictions will become reality one day – the only question is if they will be able to cover the losses, which they have experienced from such a long wait.

    If Tesla shares are not governed by logic, then what is the growth accelerator? The answer is banal – rumors and expectations. Elon Musk has promised that the company will become profitable during the next two quarters of the year (although he always promises something). Tesla is now setting all its expectations at Model 3 and the huge demand for it.

    We cannot ignore the talent of Elon Musk either. He is not only a great inventor but also a good seller. Perhaps, it is only his persuasiveness that makes investors believe that the future is bright for Tesla and stimulates them to further invest. Currently, the company produces 5,000 electric cars a week and is planning to be producing 6,000 by the end of August.

    The technical analysis still indicates that there is an uptrend and that the probability of the further growth of the price of the shares is high. The price is above the 200-day moving average and it has bounced off the support level of 300 USD. The closest resistance is at 400 USD.

    Disclaimer!

    Any predictions contained herein are based on the authors’ particular opinion. This analysis shall not be treated as trading advice. RoboMarkets shall not be held liable for the results of the trades arising from relying upon trading recommendations and reviews contained herein.

    Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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    4.4 stars on average, based on 6 rated postsHaving majored in both Social Psychology and Economics, I went on to continue my education in post graduate. Later I worked as a team lead of a tech and fundamental analysis lab in the Applied System Analysis Research Institute. This helped me to acquire all necessary skills and experience to become a successful trader and analyst, as well as a portfolio manager in an investment company. I'm a pro in the financial field and the author of articles for various international media. I also hold the position of Chief Analyst at RoboMarkets.




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    Stocks

    Apple Becomes Wall Street’s First Trillion-Dollar Company

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    Apple

    Apple Inc. (AAPL), the world’s most valuable company, reached a major milestone Thursday after its market value crossed $1 trillion for the first time. The iPhone maker is the first publicly-traded U.S. company to reach that landmark, underscoring its explosive growth over the past two decades.

    Shares of the Cupertino, California-based company reached a high of $207.05 on Thursday, enough to send its total market capitalization past $1 trillion. Share prices would later consolidate around $206.94 for a total value of $973.2 billion based on 4.92 billion shares outstanding.

    The stock, which has returned 21% this year, was propelled higher by another solid earnings report showing above-trend profitability and revenue. On Tuesday, Apple reported an earnings per share of $2.34 for its fiscal third quarter on revenues of $53.3 billion. Analysts had forecast per-share earnings of $2.18 on $52.34 billion in sales.

    The gains came even as iPhone sales basically flat-lined at 41.3 million.

    Software and services revenue, which includes App Store, AppleCare, Apple Pay, iTunes and cloud computing services, posted quarterly revenue of $9.55 billion – the highest on record.

    Although very few companies have rivaled Apple’s trajectory, the company is trying to fend off Amazon.com’s (AMZN) explosive growth. In 2011, the online marketplace was worth just a third of Apple’s value. On Thursday, it was worth roughly $875 billion, having surpassed $900 billion in July.

    The technology-focused Nasdaq Composite Index traded sharply higher on Thursday, gaining 0.8%. The NYSE Fang+ Index, which includes Apple, Amazon and other high-growth stocks, was up 1.7%.

    As Hacked reported Wednesday, 40% of technology stocks listed on the S&P 500 Index have entered into correction territory recently, raising the specter of a bigger market pullback in the near future. Tech giants Facebook Inc. (FB) and Netflix Inc. (NFLX) are down more than 20% from their recent peaks, which puts them in bear market territory.

    Analysts at Morgan Stanley recently outlined the lending danger in a note to clients:

    “With Amazon’s strong quarter out of the way, and a very strong 2Q GDP number on the tape, investors were finally faced with the proverbial question of ’what do I have to look forward to now?’ The selling started slowly, built steadily, and left the biggest winners of the year down the most. The bottom line for us is that we think the selling has just begun and this correction will be biggest since the one we experienced in February.”

    Featured image courtesy of Shutterstock.

    Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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    4.6 stars on average, based on 552 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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