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NASDAQ Drops 1.9% as Big Tech Takes a Big Dive

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You’d think that all those flashy technology names would be soaring after last week’s blowout quarterly reports, but instead this space led the market lower on Tuesday. And a comment from the Treasury Secretary about possibly raising interest rates didn’t help the situation.

The NASDAQ plunged 1.88% (or about 261 points) to 13,633.50. So how rough has it been for technology of late? ALL of the Big Tech names that reported last week were down on Tuesday... and not by a little bit.

Apple (AAPL) was off by 3.5%, while Amazon (AMZN) declined 2.2%. Facebook (FB), Alphabet (GOOG) and Microsoft (MSFT) were each down by more than 1%. All of these names easily beat on both the top and bottom lines last week.

The tech decline also impacted the S&P, which slipped 0.67% to 4164.66. The Dow squeezed out an advance of 0.06% (or nearly 20 points) to 34,133.03, so it managed to hold onto all of yesterday’s 238-point increase.

The low point of the session came when Treasury Secretary Janet Yellen stated that interest rates might have to rise to keep the economy from overheating during the recovery. That’s not what the market likes to hear... even if it is true. Stocks dropped on the comments, but recovered most of the decline by the close.

“Granted, she didn’t give a timeline. Plus, she doesn’t make interest rate policy. Moreover, she’s not saying anything we don’t already know,” said Kevin Matras in today’s Options Trader. “Eventually, there will be a rise in interest rates. But according to the Fed, that’s not likely until the end of 2023. So Yellen’s statement was a bit odd given all that the Fed has said. So investors should brush this off."

Some of the major earnings reports today were Pfizer (PFE) and CVS Health (CVS), which surprised by 17.7% and 18.6%, respectively. More impressively though, shares advanced on the news. PFE was up 0.28% and CVS jumped 4.34%. Shares of Activision Blizzard (ATVI) rose 6% afterhours, as of this writing, after announcing a positive surprise of more than 21% this evening.  

Earnings season is really in full swing now. There are hundreds of reports coming out again on Wednesday, including PayPal (PYPL), Uber (UBER), General Motors (GM), Twilio (TWLO) and Allstate (ALL), just to name a few.

Today's Portfolio Highlights:

Stocks Under $10: The soft market this morning allowed Brian to get back into Immersion Corporation (IMMR), a developer of hardware and software technologies that enable users to interact with computers using their sense of touch. You may remember that this portfolio pulled a 40% return out of this name in late February. The editor is expecting more of the same from this Zacks Rank #2 (Buy). IMMR has beaten the Zacks Consensus Estimate in each of the past three quarters and now has a four-quarter average surprise of 25%. It will report again later this week. Brian also sees “a decent valuation here for a small cap that has positive earnings”. Read the full write-up for more on today’s addition.

Surprise Trader: This earnings season hasn’t been kind to stocks that delivered big beats, especially if they came in with high expectations. So Dave has an idea. On Tuesday, he added a stock with lower expectations since it has more of a chance for a big move higher. The editor picked up home exercise equipment company Nautilus Group (NLS), which has fantastic Zacks Style Scores and is part of a space (Retail – Mail Order) that’s in the Top 9% of the Zacks Industry Rank. However, it’s a Zacks Rank #3 (Hold). NLS has a positive Earnings ESP for the quarter coming after the bell on Monday, May 10. It beat by more than 27% last time. NLS was added with an 11% allocation today, while the service also got out of the struggling MACOM Tech (MTSI) position. See the complete commentary for more on today’s action.

TAZR Trader: This market action has Kevin wanting to raise even more cash, so on Tuesday he sold Baidu (BIDU) after the stock slipped to a Zacks Rank #5 (Strong Sell). However, this AI-focused player in Chinese big data still brought a nice 21.7% profit to the portfolio. The editor also sold Novavax (NVAX) for a 0.5% gain as the breakeven stop was hit. The portfolio’s cash position in now over 60%, which is exactly where Kevin wants to be at the moment.

Black Box Trader: This portfolio had the best-performing stock among all ZU portfolios on Tuesday as Domtar Corp. (UFS) jumped 19.2%. According to news reports, this paper company is in merger talks with Canada’s Paper Excellence. UFS is now up more than 21% since being added on April 26. By the way, this service had two of the Top 5 today as Nucor (NUE) advanced 4.6%. Read the Black Box Trader’s Guide to learn more about this computer-driven service.

Zacks Short Sell List: The portfolio changed three names in this week's adjustment. The short-covered stocks were:

• JOYY Inc. (YY, +11.2%)
• Autodesk (ADSK)
• China Lodging Group (HTHT)

The new buys that replaced these names included:

• Shopify (SHOP)
• Southwest Airlines (LUV)
• T-Mobile US (TMUS)

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

Counterstrike: "In what feels like the first selling all quarter, stocks rolled over today and we saw some liquidation off the open. Things stabilized in the middle of the day and then we rallied into the close (per usual).

"The theme of earnings season being 'as good as it gets' is taking hold. Look at stocks like Amazon, Apple and Shopify since those amazing quarters. These stocks should not be going lower unless market participants believe the next few quarters won't look as good as what they just reported.

"This creates a problem with our strategy of buying the dip after these earnings reports. We don't want to get in too early, so I am making a list of stocks and setting some price alerts. This group of stocks will grow and shrink and eventually we will add some positions. We want to be buyers of this selling, but its very important to be picky in this market."
-- Jeremy Mullin

Have a Great Evening,
Jim Giaquinto

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