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Rallying Into the Fed Decision

Jim Giaquinto

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The major indices rallied into the close on Tuesday and seem ready to try and break to new highs… as long as the Fed does what’s expected tomorrow, of course.

With oil prices coming back to earth after yesterday’s spike, investors couldn’t contain their excitement for Wednesday’s widely expected rate cut.

The NASDAQ spent most of the session in the red, but finished with a gain of 0.40% (or more than 32 points) to 8186.02. The S&P got back above 3,000 with a rise of 0.26% to 3005.70.

The Dow’s 8-day winning streak ended yesterday, but the index was right back in the green today with an advance of 0.13% (or nearly 40 points) to 27,110.80. It recovered from an approximately 100-point decline earlier in the session.

The week started in the red on Monday when oil prices soared after drone attacks on Saudi Arabian oil production facilities.

However, the oil supply should be back online quicker than expected, so prices pulled back sharply and focus returned to the big event of the week.

We’ve been waiting for this day since the last Fed meeting in late July, which included a 25-basis point cut. The market expects a repeat tomorrow and would also like some dovish language thrown in for good measure.

If investors get everything they ask for, then the Dow and S&P may get enough fuel in the coming days to jump the approximately 1% needed to set new highs.

And then we can start worrying about the upcoming trade meetings!

Today's Portfolio Highlights:

Stocks Under $10:
With oil being in the news so much recently, Brian decided to add a name from this space on Tuesday. He picked up Earthstone Energy (ESTE), an independent oil & gas E&P company with straight “A”s for Zacks Style Scores. It has put together two straight positive surprises of 35% last time and as much as 414% the quarter before. The editor also likes ESTE’s topline growth of 20% and price to sales multiple of 1.5x. The portfolio also decided to sell Controlador Vuela (VLRS) for a 15.5% advance in less than a month! Read the full write-up for more on today’s moves.

Surprise Trader: Now that we’re in between earnings seasons, Dave thinks it’s a good time to cash out positions that are “getting a little long in the tooth”. Therefore, he sold the remaining half of discount giant Target (TGT) for a return of 27.6% in a month. The editor sold the first half on August 28 to protect from possible downward risk, which fortunately never materialized. That was a double-digit profit too. By the way, Dave is considering a new addition later in the week.

TAZR Trader: Since there are few catalysts for new highs going into an FOMC meeting that will sound more hawkish than market players are expecting, Kevin is concerned about a market slide heading into October. So the editor decided hedge his favorite long positions with the ProShares UltraPro Short QQQ ETF (SQQQ) on Tuesday. Read the full write-up for more.

Zacks Short List: The portfolio included only one swap in this week's adjustment. It short-covered Baozun (BZUN) and replaced it by adding Gardner Denver Holdings (GDI). Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short List Trader Guide.

Insider Trader: "The Saudis held a press conference today to talk about the Abqaiq damage and it seems better than expected. They will be able to get 2 million barrels back on shortly with most of the rest by October.

"It's not going to be months and months of lowered production, as had been feared.

"But as long as it appears that production will not be down for very long, the oil market will retreat, as will the oil stocks. And it will likely go back to being the most hated sector on Wall Street. Additionally, the transports, including the airlines, rebounded today. United Airlines gained 1.4%.

"So this event doesn't look like a black swan event after all. And that's good for the stock market."
-- Tracey Ryniec

Until Tomorrow,
Jim Giaquinto

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