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Apple Warning Sparks 2018-Style Selloff

Jim Giaquinto

Back in the good old days (which were before October 2018), solid news from Apple meant a solid performance for the market.

Well, it works the other way too.

The market’s recent bounce hit a wall on Thursday that led to sharp declines for each of the major indices. We were pretty sure something like this would happen today in the wake of last night’s news that Apple lowered its Q1 guidance amid weak iPhone sales in China.

Apple was untouchable for years and became the first $1 trillion U.S. company just a few months back before this correction began. So yesterday’s news was not only a shock, but reinforced fears of a slowing global economy. And if that wasn’t enough to put investors back on edge, we were also treated to a weaker-than-expected ISM manufacturing index today.

In the end, the indices had their first 2018-like pullback of the year. The NASDAQ plunged over 3% (or about 202 points) to 6463.5 as Apple dipped 10%. The Dow slipped 2.83% (or 660 points) to 22,686.22, while the S&P dropped 2.48% to 2447.89.

However, it could have been worse. It’s not like we haven’t seen 600-point plunges before. As Jeremy Mullin, editor of Counterstrike, said today, the bulls did defend yesterday’s lows.

“(T)he 2450 level on the S&P held twice. If this level can hold, I’d expect a squeeze over the next week. Targets for this setup are 2553, so we could see a nice move. If a bullish scenario arrives, we could see an attempt to get 2650, which is where the 50-day moving average is,” he said. “If that 2445-50 area fails to hold, I imagine we take another leg down lower, perhaps all the way back to the Christmas Eve lows at 2300.”

Tomorrow is shaping up to be very interesting. Along with more fallout from the Apple news, the jobs report is set to be released AND we’ll hear from Fed Chair Jerome Powell. It could be an important day in deciding the market's direction for early 2019.

Today's Portfolio Highlights:

Surprise Trader: For the past 14 consecutive quarters, SYNNEX Corp. (SNX) has been on a roll. This business process services company has beaten the Zacks Consensus Estimate each time over that span. And Dave thinks this trend will continue when it reports again after the close on January 10. SNX currently has a positive Earnings ESP of 5.52% for the quarter. The editor decided to kick off 2019 by adding this Zacks Rank #2 (Buy) on Thursday with a 12.5% allocation. Read the complete commentary for more on this new addition.

Home Run Investor: Now that the Santa Claus Rally is over, we’re back to wondering if the market has seen the bottom of the correction. Brian Bolan isn’t sure, so he’s staying conservative with his latest addition to the portfolio. On Thursday, the editor added Steelcase (SCS), a Zacks Rank #2 (Buy) maker of work environment products such as seating, desks, storage, tech, etc. The company has a good earnings history, including an average surprise of nearly 22% over the past four quarters. The editor likes the valuation of SCS and believes he’s getting into a company with an improving financial picture at a great price. Read the full write-up for more on this new addition.  

Income Investor: "The upside here is that it does look like we are taking baby steps in resolving the trade war. President Trump tweeted Saturday that he had a “long and very good” phone call with President Xi, and Chinese officials confirmed that sentiment in a speech celebrating the 40th anniversary of American-Chinese diplomatic relations.

"Official trade talks will begin in Beijing next week. It will be the first face-to-face negotiations since the 90-day truce was reached last month, and Wall Street will be crossing its fingers for something productive.

"Do I think it’s possible for both sides to settle the myriad cultural and economic differences at the root of the trade dispute in just a few months? No. Do I think productive talks could inspire officials to put the figurative guns down, back off on new tariffs, and agree to negotiate a long-term deal? For now, I’m cautiously optimistic."
-- Ryan McQueeney

All the Best,
Jim Giaquinto

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