No Rebound to This Morning’s Selloff

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We saw another morning selloff to begin Tuesday… but unfortunately, we didn’t get another rebound as the major indices finished the session in the red.

The Dow had the worst performance of the day, ending right at its lows with a decline of 0.42% (or nearly 120 points) to 28,583.68.

Just yesterday, the index recovered from a more than 200-point plunge to gain nearly 70 points.

The NASDAQ spent most of the session in the green as tech continues to outperform. But a late plunge put the index just under breakeven with a slide of 0.03% (or less than 3 points) to 9068.58.

The S&P chopped in tandem with the Dow on Tuesday and ended lower by 0.28% to 3237.18.

Well, we’re still not at war with Iran, thankfully! In fact, there was no major news overnight, but we know they’ll be some type of retaliation for the recent airstrike. At the very least, tensions will remain heightened between the two countries for the foreseeable future.

Investors considered this strife enough of a reason to take some profits off the table on Tuesday.

But don’t be surprised to see stocks back at all-time highs relatively soon, especially if there are no big developments in the Iran situation. The market remains encouraged by the trade progress with China and the possibility of Phase 1 getting signed this month.

Despite the negative results, Tuesday’s session did have some good news. The ISM non-manufacturing index rose to 55 in December, which topped expectations and improved upon the previous month’s 53.9. (Anything above 50 means expansion.)

That reading is all the more welcome because last week’s ISM Manufacturing index marked the fifth straight month of contraction (sub 50).

It’ll be a full week of data with the ADP employment report tomorrow and the Government Employment Situation report on Friday.

And then earnings season starts next week. Yep, the holidays are certainly over!

Today's Portfolio Highlights:

Stocks Under $10: This portfolio usually doesn’t like to add stocks after a sharp run higher, but Brian is making an exception with Air Industries (AIRI). The editor thinks this flight critical products company is poised to run over $3 in the near term, especially with the renewed tension in the Middle East. But even without the geopolitics events, Brian thinks the chart is really strong for this designer and manufacturer of flight safety parts, landing gear and components, ground support equipment and the like. Read the complete commentary for more. The portfolio is now fully invested with 15 names after the addition of AIRI, but don’t be surprised if there’s some fine tuning.

ETF Investor: Cloud computing is quickly becoming “the new model of computing in the technology industry”, according to Neena. And she expects it to continue growing for years to come due to its security and cost efficiency. For the longest time, the First Trust Cloud Computing ETF (SKYY) was the only fund providing exposure to cloud, which is why the portfolio added it in 2017. But now, there’s a more “pure-play” pick in Global X Cloud Computing ETF (CLOU). The fund made its debut in April and was actually one of the most successful launches of 2019. Therefore, Neena decided to sell SKYY on Tuesday for a nearly 38% return and immediately replace it by adding CLOU. Read the full write-up for more on today’s moves.

Surprise Trader: We’re moving pretty quickly from the busy holiday season to the hectic earnings season next week. Dave kicked things off on Tuesday with an industry that has served the portfolio very well over the last few quarters. He added Delta Air Lines (DAL), a Zacks Rank #2 (Buy) with a positive Earnings ESP of 2.2% for the quarter being reported before the bell next Tuesday, January 14th. The allocation is 12.5%. Meanwhile, the editor also sold Guess? (GES) for a return of approximately 30% in less than two months. Read the complete commentary for more on all of today’s moves.  

TAZR Trader: A bank finally upgraded payment processor Square (SQ) today, which Kevin wanted to see before getting back into the name. Now, he thinks the stock has a “good shot at closing above the 50-day and driving a good chunk of the 34 million shares short to exit”. Therefore, the added it on Tuesday at an attractive price below $65. The editor remains impressed with SQ’s growth outlook and valuation, which he gets into with some detail in the full commentary.

Zacks Short List: The portfolio swapped four names in its first adjustment of 2020. The stocks that were short-covered and left the service today included:

• Zayo Group (ZAYO)
• Cheniere Energy (LNG)
• GDS Holdings (GDS)
• Live Nation Entertainment (LYV)

The new buys that replaced these names are:

• iRobot Corp. (IRBT)
• Schlumberger (SLB)
• Texas Instruments (TXN)
• Twitter (TWTR)

Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short List Trader Guide.

Until Tomorrow,
Jim Giaquinto

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