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Stocks Take a Small Step Back

Jim Giaquinto

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• Sheraz and Kevin Cook Agree to Disagree on what will be the single most important metric investors should watch in the first half of this year
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• And much more

Simply log on to Zacks.com and view the February episode here. And please let us know what you think of this format. Email all feedback to mailbag@zacks.com.

It’s a good time to take a break. Earnings season is more than halfway done and has gone pretty much as expected, while any trade updates with China are probably on hold until negotiations begin again next week. Therefore, the major indices pulled back a little bit on Wednesday for the first time this week. 

The NASDAQ had outperformed its counterparts in the previous two days, including a more than 1% advance on Monday ahead of the Alphabet report. Today, it led the way lower, though the index was only off by 0.36% to 7375.28.

The S&P’s five-day winning streak came to an end in the session as it slipped 0.22% to 2731.61, while the Dow’s 3-day run finished with a dip of 0.08% (or only about 21 points) to 25,390.30.

Fortunately, the Dow and NASDAQ are still in a real good position for their seventh straight weekly gains heading into the final two sessions.

"Will the market retest the highs and finally break through or is the rejection (of the 200-day moving average) a harbinger of what’s to come?" asked Dave in Surprise Trader.

"After what I saw today, I’m expecting a breakout, not a break down."

President Trump’s State of the Union address last night was well received for the most part, but it didn’t have any impact on the market’s direction. As expected, there weren’t many specifics on his future plans, which may have contributed to this quiet session. Trump took the opportunity to talk tough again on trade negotiations with China, though he didn’t offer anything new on this issue. The same goes for the border wall, which could be the determining factor in whether or not we get another government shutdown later this month.

So, the focus remains on earnings season, which has seen a slowdown in growth, as was expected, but has still been good enough to sustain the market’s mostly positive sentiment so far.

Today's Portfolio Highlights:

Stocks Under $10:
It’s been a good time for chip stocks recently, so Brian Bolan feels confident about adding more of these names to the portfolio. Case in point, the editor bought Amkor Technology (AMKR) on Wednesday, which is a Zacks Rank #2 (Buy) independent provider of semiconductor packaging and test services. The company has beaten the Zacks Consensus Estimate in three of the last four quarters and will be announcing again after the bell on Monday. The stock price bottomed at about $6 and has been moving higher ever since, so Brian wants in before it leaves the parameters of this portfolio (e.g. it moves past $10). In addition to the growth potential, AMKR also has something for value players. Read the complete commentary for more on this new addition.

Surprise Trader: The portfolio continued its week-long buying spree on Wednesday with a 12.5% allocation in Medidata Solutions (MDSO), a Zacks Rank #2 (Buy) global provider of hosted clinical development solutions. The company has amassed an average surprise of more than 19% over the past four quarters and heads into its next report on Tuesday with a positive Earnings ESP. Learn more about this latest buy in the full write-up.

Home Run Investor: The security software space is an area that Brian Bolan likes right now, and today he picked up a new(ish) name from the group. Carbon Black (CBLK) hasn’t reported a profit in the three quarters of data available, but each period saw a narrowed loss that beat the Zacks Consensus Estimate. In other words, CBLK reported a positive surprise for three straight quarters and will announce again on February 20. The editor is getting involved before the next beat. See the full write-up for more.

Technology Innovators: As promised, Brian Bolan added to this portfolio for the second straight session as he moves to fill several open spots. On Wednesday, he bought Digi International (DGII), a Zacks Rank #1 (Strong Buy) global provider of business and mission-critical Internet of Things (IoT) products and services. The company reported a solid quarter last week and shares are on the rise. Read the full write-up for more on this new buy and don’t be surprised if there’s yet another play tomorrow.

All the Best,
Jim Giaquinto

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