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Not Ready to Rally

Jim Giaquinto

Stocks fell off a cliff to start this shortened week with the major indices plunging from morning gains to finish at session lows.

President Trump’s recent statement in Japan that the U.S. was “not ready” for a trade deal was the latest in a growing number of signals that an agreement with China is still a ways off.

This comes after a widely expected trade deal fell through in the eleventh hour a few weeks ago, followed by a round of rising tariffs between the two countries.

The President attempted to take some of the sting out of the situation by stating that an agreement will eventually happen.

The market isn’t so sure anymore.

The Dow put a down payment on a sixth straight week in the red on Tuesday by slipping 0.93% (or nearly 238 points) to 25,347.77. The S&P is hanging onto 2800 by its fingernails after today’s drop of 0.84% to 2802.39, while the NASDAQ was off 0.39% to 7607.35.

All three of the indices came back from the Memorial Day weekend with morning gains. The Dow was actually up more than 100 points at its best. But it didn’t last.

It looks like this is what we can expect for the time being. The ongoing trade conflict will hover over the market and threaten to limit any pieces of good news, such as today’s strong consumer confidence report.

May will likely be the first down month of the year, but that means we’re still solidly higher for 2019. So the month of June is going to be very important for the market. Unfortunately, the summer lull is about to begin.

Many of the editors believe that we’re going to be bouncing in a range for most of the next few weeks until something forces stocks to pick a direction. Let’s hope that ‘something’ is a resolution on trade.

Today's Portfolio Highlights:

Options Trader: The chart for Tetra Tech (TTEK) is showing an “unmistakable bullish flagging pattern”, according to Kevin. But that’s just the tip of the iceberg for this provider of consulting, engineering, program management, construction management and technical services. It is also a Zacks Rank #2 (Buy), which means earnings estimates are on the rise. Furthermore, its projected EPS Growth Rate is 15.25% and its P/S Ratio is 1.25, both of which compare favorably with S&P averages. The editor thinks TTEK will move past its all-time highs and toward his first price target of $80. Therefore, he added TTEK on Tuesday by buying to open 2 Dec. 70.00 Calls. Read the full write-up for more.

Healthcare Innovators: Though Veeva Systems (VEEV) has tons of potential in healthcare IT moving forward, Kevin agrees with other firms that the stock looks well-priced for perfection at the moment. Since there’s a risk of it dropping 10% or more on even the slightest issue, the editor thought this was a good time to sell VEEV and collect an 18.6% return in less than 3 months ahead of its earnings report tomorrow. He would be very willing to buy the stock back at a lower price. 

Surprise Trader: The tail-end of earnings season is one of Dave’s favorite times because winners can run more as things quiet down. He’s hoping to get some distance from today’s addition of Verint Systems (VRNT), a Zacks Rank #2 (Buy) from the highly-ranked Computer – Software industry (top 39%). The company reports after the bell tomorrow and analysts are currently looking for 40 cents. The editor added VRNT on Tuesday with a 12.5% allocation. See the complete commentary for more.

Counterstrike: When a stock trades lower after an earnings beat, Jeremy would usually consider that a buying opportunity. But that’s not the case with luxury home builder Toll Brothers (TOL). A deeper dive by the editor showed that a Fib retracement line broke on the chart, while a brokerage firm warned of lower housing prices in California and elsewhere. With problems on both the technical and fundamental side, Jeremy decided to short sell TOL with a 9% allocation. Learn more about this move in the complete commentary.

Stocks Under $10: Brian Bolan likes the feel of Immersion Corp. (IMMR), a Zacks Rank #2 (Buy) that develops hardware and software technologies that enable users to interact with computers using their sense of touch. Concerns over trade have pulled this stock well under $10 and right into this portfolio’s wheelhouse. In its recent report, the editor really appreciated its full-year revenue outlook of between $36 million and $41 million, which was better than expectations of $27 million. He thinks IMMR has a lot of potential moving forward, so he added it to the portfolio on Tuesday. Read the full write-up for more on this new buy.

Black Box Trader: The portfolio swapped out four names in this week’s adjustment. The stocks that exited the service today included: 

• Loews Corp. (L, +1.9%)
• Omnicom Group (OMC)
• Leidos Holdings (LDOS)
• Devon Energy (DVN)

The new buys that replaced these names are:  

• Abercrombie & Fitch (ANF)
• Target Corp. (TGT)
• WellCare Health Plans (WCG)
• HP Inc. (HPQ)

Read the Black Box Trader’s Guide to learn more about this computer-driven service designed to take the emotion out of investing.

Zacks Short List: This week’s reorganization brought only one change. The portfolio short-covered Neurocrine Biosciences (NBIX) and filled the spot by adding Shake Shack (SHAK). Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short List Trader Guide.

All the Best,
Jim Giaquinto

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