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No Follow Through as Trade, Bond Yield Concerns Return

Jim Giaquinto

Stocks gave back some of yesterday’s gains on Tuesday as investors find it difficult to stay positive for very long in a market struggling to find direction.

The major indices actually started the session solidly positive, but couldn’t keep the momentum going as the usual suspects of trade and bond yields spoiled the uptrend.

The Dow moved from a 150-point gain at its best to a loss of nearly 121 points at the close. The index dipped 0.47% to 25,777.90. The NASDAQ slipped 0.34% (or nearly 27 points) to 7826.95 and the S&P was off 0.32% to 2869.16.

On Monday, each of these indices advanced more than 1%.

Yesterday’s positive tone on trade didn’t carry over to Tuesday, as a tweet from Hu Xijin, editor-in-chief of the Global Times in China, contradicted recent hopes that the two sides would soon be returning to the negotiating table.

Specifically, he stated that China is “not putting so much emphasis on trade talks”. President Trump offered a much more encouraging take yesterday, which led stocks higher in this headline-focused environment.

Plus we saw another yield curve inversion on Tuesday as the 10-year dipped below the 2-year, which is considered a sign of recession down the road.

The market certainly took the news better than it did a couple weeks ago when stocks plunged 3%, but its still something that makes investors feel uncomfortable.

What will tomorrow’s headline be? Of course, we don’t know yet, which also means we don’t know what to expect from the market on Wednesday. This blind spot makes investors uncomfortable too.

We’ll just have to keep taking it a day at a time for right now. Hopefully, there’ll be enough positive news in the next few days to break this four-week losing streak and secure at least one green week for the month of August.

Today's Portfolio Highlights:

Stocks Under $10: Every now and then, you’ve just got to take a chance on a stock that looks ready to bounce. That’s the idea behind Brian’s addition of Energy Recovery (ERII), a Zacks Rank #3 (Hold) manufacturer of energy recovery devices used in the water desalination industry. The stock slipped to around $9 from $12 at the start of August, despite another solid quarterly beat. In fact, ERII has put together an average beat of 79% over the past four quarters with the most recent surprise being the smallest at ‘only’ 16%! With good growth on the topline and margins moving in the right direction, the editor thinks this name is poised to move higher again. Read the full write-up for more and be ready for another buy tomorrow or Thursday IF the market cooperates.   

Technology Innovators: When the portfolio sold MongoDB (MDB) back in late May, it secured a gain of 4.2%. Looking back on it now, Brian knows that he sold it too soon, but he’s giving it another go by adding this general purpose database platform provider once again on Tuesday. The stock is showing some good momentum and was recently upgraded by a major firm. It also has a great history of beating earnings with an average surprise of 24% over the past four quarters. Topline growth of 85% and improving margins has the editor feeling good about adding MDB. He’s looking for $200 and plans to be a lot more patient this time. See the full write-up for more. 

Counterstrike: We had another positive start to this week, but Jeremy isn’t convinced that it’s for real. Therefore, he decided to put 5% more into ProShares Ultra VIX Short-Term Futures ETF (UVXY), which is one of his favorite plays during anxious times like these since it will advance as concerns rise. The editor first added 5% this past Friday, giving the portfolio an allocation of 10%. Read the complete commentary for more.

Zacks Short List:
All three of the positions that left today brought profits to the portfolio. Those short-covered names were:

• Gardner Denver Holdings (GDI, +9%)
• iRobot Corp. (IRBT, +8.3%)
• Inphi Corp. (IPHI, +3.8%)

The new buys that replaced these positions are:

• Baozun (BZUN)
• Palo Alto Networks (PANW)
• Sina Corp. (SINA)

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

All the Best, 
Jim Giaquinto

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