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NASDAQ Plunges 5% as the Heat Wave Finally Cools Off

Believe it or not, but what goes up actually does come down… eventually.

After weeks of setting fresh highs regardless of the news, the market took a significant step back on Thursday and finally cooled off a bit from one of the hottest stretches in history.

The epicenter of this selling could only be in one place: technology! The industry that kept things afloat during the worst of the pandemic fears and then led us to new highs afterwards in record time.

The NASDAQ plunged practically 5% on Thursday (or nearly 600 points) to 11,458.10. The FAANGs all got shellacked, led by an 8% plunge in Apple (AAPL).

The iPhone maker gained more than 7% in the first two days of this week in the shadow of its 4-for-1 stock split. And then it lost more than 10% in the following two days.

Meanwhile, the rest of the FAANGs were all down by 3.5% or more, especially Alphabet (GOOG, -5%). And Microsoft (MSFT) joined in the selloff by dropping 6.2%.

The NASDAQ’s constant partner in record territory has been the S&P, and today that index slipped by 3.51% to 3455.06. So the seemingly daily tally of new highs for these two are over… for now, at least.

The Dow had just reclaimed 29K yesterday and was within 450 points over its own record. Now, it’s back to being more than 1200 points away after sliding 2.78% (or about 807 points) to 28,292.73.

So what caused all this craziness? It probably had something to do with the major indices each soaring by over 50% in just 5 months, which any one of our editors will tell you is not normal or sustainable. Basically, it had to happen sometime and didn’t need a specific reason.

Interestingly, this earthquake came on a day with some pretty good economic data. Jobless claims dipped to 881,000 last week, which was much better than expectations of 950,000 and marks the second sub-1 million reading in the past four weeks.

Also, ISM services were at 56.9 in August for its third straight month above 50.

The editors have been saying that a pullback – even a sharp one – would be normal and healthy. Well the market should be feeling pretty good after today’s drop.

But there could be more to come in the days ahead. While the selloff felt pretty bad today, it didn’t even make a dent in the rallies we’ve enjoyed since March.

Let’s see how we end the week tomorrow, and don’t forget the monthly jobs report could have a big say on Friday's action.

Today's Portfolio Highlights:

Commodity Innovators: Did you know that electric cars are expected to account for 79% of lithium demand by 2030? Jeremy did… and that’s why he picked up Albemarle Corporation (ALB) on Thursday. Not only is this company a premier specialty chemicals provider, but it has also partnered with the energy department to make lithium processing more efficient and to accelerate its commercialization. The editor used today’s pullback to pick up ALB at a great price. Meanwhile, the portfolio is changing its mind on crude and now expects a downside move. Therefore, ProShares Ultra Bloomberg Crude Oil (UCO) was sold and replaced with the addition of ProShares UltraShort Bloomber Crude Oil (SCO). Finally, ExxonMobil (XOM) was also sold today to complete a rough week for the oil giant. Read the complete commentary for more on all of today’s moves. 

Surprise Trader: We’re not exactly sure when Brady Corporation (BRC) will be reporting… but Dave knows from history that it’s coming very soon. The editor wants to add this world leader in complete identification solutions to the portfolio before it comes to the plate. BRC has a positive earnings ESP of 10.09% for the upcoming quarter, and hasn’t missed the Zacks Consensus Estimate since September 2015. Dave added BRC on Thursday with an 11.85% allocation. Read the full write-up for more. 

TAZR Trader: You can’t have 5G without 800G, which is why Kevin added more to his Infinera (INFN) position. The editor originally bought this provider of digital optical networking systems last month to capitalize on an increased footprint in the shadow of troubled Huawei. Well, last week a major firm echoed Kevin's optimism by upgrading the stock. And in case you were wondering, Ciena’s (CIEN) recent cloudy outlook should have only minimal impact on INFN estimates. Read the complete commentary for more specifics on this move.

Zacks Short List: This portfolio was made for days with sharp downturns. In fact, the sharper, the better. On Thursday, it's short positions accounted for four of the top five winners. Sunrun (RUN) saw the biggest gain of nearly 10.4%, while The Trade Desk (TTD) brought in almost 9.8%, Marvell Technology (MRVL) saw nearly 7% and Netflix (NFLX) generated 4.9%. Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short List Trader Guide.

Until Tomorrow,
Jim Giaquinto

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