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Weak Data Day Puts Winning Streak in Jeopardy

Jim Giaquinto

Soft economic data put stocks under pressure right from the beginning of Thursday’s session, and hopes for a trade deal out of Washington weren’t enough to repair the damage. However, late-day buying in the major indices kept the losses rather tame.

The Dow declined 0.40% to 25,850.63, while the NASDAQ was off 0.39% to 7459.71. The S&P slipped 0.35% to 2774.88.

Some of the reports that disappointed the market today included existing home sales, durable goods, the Philly Fed manufacturing index, as well as a downward revision for fourth-quarter GDP from the Atlanta Federal Reserve. The data comes exactly one week after a surprising drop in retail sales for December. We’re still waiting to see how much these numbers are impacted by the sharp correction at the end of 2018 and the country’s longest government shutdown in history.

With the March 1 deadline quickly approaching (though with the possibility of being extended), U.S. and China negotiators are back at work in Washington trying to get a deal done. According to Reuters, they are putting together six memorandums of understanding for structural issues, including IP, services, tech transfer, agriculture, currency and non-tariff barriers.

Such positive news was enough to give the major indices a very solid performance last week, with the Dow up 3% and the other two up more than 2% each. But it didn’t get the job done today.

So now we head into Friday’s session with the market’s eight-week winning streak in jeopardy. The first two days were positive, but only barely so as we wait for some clarity on trade. The indices were only down by about 0.4% today, but that’s actually one of the steeper declines we’ve seen of late. Given the holiday on Monday, the Big 3 move into the final day with slight losses for the week.

However, it’s nothing that even a modestly positive closing session can’t fix!

Today's Portfolio Highlights:

Stocks Under $10: The portfolio took a break from tech for its newest addition. Instead, Brian Bolan added Del Frisco’s Restaurant Group (DFRG), a Zacks Rank #2 (Buy) that owns steakhouses. The company has topped the Zacks Consensus Estimate for two straight quarters now with beats of more than 75% and 100%. DFRG will report again next month. The editor likes the 43% topline growth from its last quarterly report and the diversification that it brings to the portfolio. Read the complete commentary for more.

Insider Trader: The portfolio bought a couple names on Thursday after finally getting some insider signals, but first Tracey sold a few positions for solid returns. Specialty chemical company Chemours (CC) exits with a return of 43.1% in just two months as the editor believes most of the stock’s rebound has already happened. Meanwhile, shares of small-cap bank Live Oak (LOB) have rebounded since getting shellacked from the government shutdown, but Tracey doesn’t know how much longer this volatile name can rise. She sold half of LOB for a 16.7% return in less than three weeks! Finally, Williams (WMB) was also sold for a 9.5% gain in a little over three months.

The new buys include Summit Materials (SUM), a construction materials company that has jumped 42% so far this year. Usually Tracey doesn’t like investing in stocks after such a run-up, but a recent buy by the CEO has her intrigued. She added SUM with a 10% allocation. The addition of Calix (CALX) is a bit more typical, as this small-cap tech company plunged 30% after its quarterly report earlier this month. However, three insiders bought shares after the selloff. Tracey added CALX with a 10% position as well, but warns that this one could be a “wild ride”. Read the complete commentary for more on all of today’s moves.

Options Trader: Shares of Rogers Communications (RCI) have come all the way back from a negative reaction to an otherwise fine report. Unfortunately, the rebound came too late for the portfolio’s previous 55.00 strike calls, which quietly expired out-of-the-money. But Kevin still likes RCI and wants to get back in now that the stock has recovered. The editor bought to open 3 Jul19 55.00 Calls in RCI on Thursday. Read the full write-up for more specifics on this addition.

Surprise Trader: When it comes to gambling, there’s an old saying that goes: “the house always wins”. Well, Dave plans to win right along with the house by adding Churchill Downs (CHDN) with a 12.5% allocation. In addition to owning the track that hosts the Kentucky Derby, the company also has four other tracks, six casinos and several OTB facilities. CHDN reports after the bell next Wednesday and has a positive Earnings ESP of 12.87%. Read the full write-up for more.

Technology Innovators: In what Brian Bolan considers to be a potential Brexit play, the portfolio picked up OSI Systems (OSIS) on Thursday. The basic idea here is that Brexit will severely slow down activity at ports of trade, which will make this company’s cargo scanning systems all the more important. In addition, this Zacks Rank #1 (Strong Buy) posted a solid beat and raise quarter in late January. Learn a lot more about this new buy in the complete commentary.

All the Best,
Jim Giaquinto

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