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State of the Market Remains Positive

Jim Giaquinto

The major indices grinded out another green session on Tuesday as earnings season continues to provide enough fuel to keep this rally going.

The NASDAQ once again enjoyed the best performance by climbing 0.74% (or about 54 points) to 7402.08.

Last night, Alphabet beat on both the top and bottom lines, but it slipped afterhours due to rising costs and other issues. Therefore, it was a big help (and relief) to see shares of the parent of Google climb approximately 1% on the first trading day after its quarterly report. All of the other FAANGs managed gains of more than 1% as well, clearing the way for another solid session for tech.

The Dow advanced 0.68% (or about 172 points) on Tuesday to 25,411.52, while the S&P improved 0.47% to 2737.70.

It’s finally time for President Trump to give the State of the Union address tonight. While it will undoubtedly include a great deal of showmanship, we’ll be paying close attention to a number of issues that might move the market, including updates on the trade negotiations with China and the possibility of another government shutdown later this month. Investors will also be looking for any potentially bipartisan proposals on infrastructure or drug pricing.

While we should never underestimate the President’s ability to make news, the most immediate factor impacting the market right now is earnings season. So far, it’s going a little bit better than expected. In other words, earnings growth is down from previous quarters as anticipated, but they haven’t been so low as to stoke fears that a recession is right around the corner. This is a pretty good place to be as we await clarity on the trade conflict and other uncertainties.

Today's Portfolio Highlights: 

Technology Innovators:
This portfolio needs new positions, so Brian Bolan added today and plans to add tomorrow as well. The pick for Tuesday was Fabrinet (FN), a Zacks Rank #2 (Buy) provider of precision optical, electro-mechanical and electronic manufacturing services. Yesterday, it beat the Zacks Consensus Estimate for the third straight quarter and hasn’t actually missed since late 2017. But despite the solid quarter, shares were down sharply today. The editor thinks FN is bound to reverse course soon and head back higher, so he decided to take a chance and buy today before the rebound. By the way, Brian also sold MACOM Technology Solutions (MTSI) and Cloudera (CLDR) for nice gains of 21.7% and 10.2%, respectively, in less than 1 month! Read the complete commentary for more on today’s moves.

Surprise Trader: Increased volatility usually means increased revenues for CBOE Global Markets (CBOE), which is the holding company for the Chicago Board of Options Exchange. Therefore, Dave is feeling pretty good about the quarterly report scheduled for Friday, especially since it has a positive Earnings ESP of 1.9%. CBOE is a Zacks Rank #2 (Buy) these days as earnings estimates have started moving higher. The editor thinks this is a good time to add the stock with a 12.5% allocation. Read the full write-up for more on all of today’s moves.

TAZR Trader: Kevin isn’t the biggest fan of the extreme valuations in the software space right now, but he recognizes that Square (SQ) is an exception with dominant credentials in payments and financial technology as they build out a complete small business ecosystem. The editor believes that this fintech wunderkind is on its way to revisiting recent highs above $78… and probably higher. Kevin also added to the Semi 3X Bear (SOXS) position since his conviction is that the recent semi runup should soon exhaust itself. The complete commentary has a lot more info on both of these moves.

Zacks Short List:
This week’s adjustment included four swaps. The stocks that were short-covered include:

• ConocoPhillips (COP)
• Tesla (TSLA)
• China Lodging Group (HTHT)
• GoDaddy (GDDY)

The new buys that replaced these names are:

• ServiceNow (NOW)
• National Oilwell Varco (NOV)
• Continental Resources (CLR)
• Whiting Petroleum (WLL)

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

Have a Good Evening,
Jim Giaquinto

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