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Stocks Halfway Back from Correction Lows

For the first time since January 26, we can boast about a positive week for the market. The major indices finished on the plus side in each of the last five days (except for the NASDAQ today). Along the way, they took a big bite out of the selloff losses. The NASDAQ gained more than 5% this week, while the Dow and S&P each jumped by more than 4%. 

In Friday’s session, the Dow rose by 0.08% to 25,219.4 and the S&P advanced by 0.04% to 2732.2. These totals weren’t much to write home about, especially when considering how high these indices were earlier in the day. But the advances were enough to extend their winning streaks to 6 sessions. The NASDAQ, though, just couldn’t hold on. It slipped 0.23% to 7239.5, marking the only negative close for a major index this week.

Now we move on to a short week due to President’s Day on Monday. The editors love how the market performed this week, but some of them are still skeptical if this can continue. Did we see the worst of this pullback or is there another drop around the corner? Both viewpoints are represented in the highlights section below:


Today's Portfolio Highlights:

Large-Cap Trader: The portfolio closed out the week with a busy session. Firstly, John sold MKS Instruments (MKSI) and Jones Lang LaSalle (JLL) for gains of 12.7% and 3.4%, respectively. These stocks were both bought on January 3, so those profits come in just under a month-and-a-half in the portfolio.

Then the editor made the following three fairly defensive buys:

• Wellcare Health (WCG) – this is an existing position that was first added in mid-2017. The pullback has provided an opportunity to add 2% more to this managed care services company.

• Packaging Corp. of America (PKG) – a Zacks Rank #2 (Buy) leading producer of containerboard and corrugated packaging products.

• South32 Ltd. (SOUHY) – a producer ofalumina, aluminum, coal, manganese, nickel, silver, lead and zinc.

Both of the new buys (PKG & SOUHY) have VGM scores of “A”. They also have attractive valuations and pay dividends. John suggests 2% allocations in each, which you can get from the proceeds in MKSI and JLL. Read the complete commentary for more on all of today’s moves.

TAZR Trader: Earlier this week, Kevin was talking about increased incidences of user and advertiser backlash for Facebook (FB) and how it could eventually convince him to sell the name from the portfolio if analysts sour on the growth outlook. Well, today’s government indictments alleging Russian interference in U.S. politics certainly won’t help matters. The company could now be in store for increased regulatory threats, along with public disapproval of the platform. Since Kevin was already thinking about an exit, this news provided the final push. He sold FB on Friday and banked a 30% return. By the way, he also sold part of Lam Research (LRCX) in a simple rebalancing move to lighten up after its 16% move off the correction lows.

Insider Trader: Several regional and community banks have seen increased insider activity of late, and Tracey added one of them on Friday. FNB Corp (FNB) is a mid-cap regional bank that is trading at a discount despite expectations for higher earnings this year. Specifically, earnings are expected to rise 21% in 2018. So far this month, three directors have bought shares of FNB in a clear sign that they believe the stock is undervalued. Read the full write-up for more on this new pick.

Counterstrike: The portfolio is shorting the Dow. Now there’s no need to go crazy. Jeremy doesn’t think the bull market is over, but he has been skeptical of this snapback and believes there’s a good chance that stocks move lower again. Technically speaking, the 61.8% fib retracement line is holding up at about 22,621 for the Dow. The editor plans to take advantage of this potential pullback with a 13% allocation in ProShares UltraPro Short Dow 30 (SDOW). This is an ultra short ETF that reflects three times the movement in the Dow (so if the Dow goes down 1%, this fund goes up 3%). If the situation changes, then Jeremy would have no problem returning to the bull. But for now, he feels most comfortable with this hedge that leaves the portfolio open for a quick double-digit return in the event of another selloff. The full commentary has a lot more on this new position, including a chart that explains the fib retracement line.

Value Investor: Shares of CAI International (CAI) plunged after it talked about more competitors entering the marketplace. The stock is actually down about 25%. But Tracey thinks those comments were blown out of proportion. The editor likes that this company leases both shipping containers and rail cars…especially since the latter business is starting to recover amid the strong economy. “CAI was cheap before but it's certainly dirt cheap now,” she said. Given its attractive valuation and expectations for earnings growth of 32% this year, Tracey decided to add CAI to the portfolio on Friday. The full commentary has her very detailed analysis on this new position.

Momentum Trader:
"While that wasn’t exactly the sort of follow-through I was looking for today, at least there wasn’t dramatic selling. Further, the S&P 500 did manage to stay above its 50-day moving average.

"Two things happened today that are important. I gave away the first, with the market closing north of the 50-day, but resistance up at the 61.8% Fib retracement is also noted. However, I am not in the selloff camp as some of my colleagues are. Rather, given the intraday resilience above the 50-day, I think the market has already passed the test and will regroup to start next week.

"Of course being cautious is always prudent, however I am optimistic for the market next week. This dramatic turnaround the last seven days was just what the doctor ordered. The overhead Fib resistance is noted but I think the close above the 50-day is more indicative of what we can expect to start next week. The bulk of earnings season is behind us which leads me to believe the market will find a direction and stick with it."
-- Dave Bartosiak, who is also editor of Surprise Trader.


Have a Great Weekend,
Jim Giaquinto

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