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NASDAQ Winning Streak Ends as Stocks Slip Slightly

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Even the NASDAQ couldn’t stay in the green on Tuesday as stocks prepare for some of the biggest tech reports of earnings season.

Actually, one of the major names went to the plate after the bell today. Microsoft (MSFT) easily beat on both the top and bottom lines in its fiscal second quarter. But the software giant’s biggest success was its Intelligent Cloud segment, which jumped 23% to $14.6 billion.

MSFT was up 1.2% in the session and has advanced 3.6% after hours, as of this writing. We’ll have to watch and see if this report has an impact on tomorrow’s market.

But the NASDAQ wasn’t privy to this info during Tuesday’s session. The index slipped 0.07% (or just about 10 points) to 13,626.06, which snaps four consecutive sessions of new highs. It also broke a five-day winning streak.

Elsewhere, the S&P slipped 0.15% to 3849.62 and the Dow was down 0.07% (or just under 23 points) to 30,937.04, despite solid reports from 3M (MMM, +3.3%) and Johnson & Johnson (JNJ, +2.7%).

We had another erratic session with a new intraday high getting spoiled as stocks moved back down to earth by the close. At least part of this zaniness was due to more short squeezes, exemplified once again by GameStop (GME). The video game retailer skyrocketed by 92.7%.

Such moves have some of the editors wondering if a top is forming, given the amount of euphoria on display despite a number of challenges for the market.

Two FAANGs will be reporting after the bell tomorrow: Apple (AAPL) and Facebook (FB). These stocks are both up more than 10% over the previous five days, which continued today with gains of 0.17% and 1.45%, respectively.

They’re up about 1% after hours, as of this writing. Tesla (TSLA) also reports after the bell tomorrow.

The Fed’s two-day policy meeting ends on Wednesday as well, which means we’ll be getting comments from Chair Jerome Powell. There aren’t expected to be many changes to policy, but the market will be paying close attention regardless.

Today's Portfolio Highlights:

Stocks Under $10: For the past six months now, Funko (FNKO) has been a frequent member of the Top 5 movers scoreboard (above). However, the toymaker slipped to a Zacks Rank #4 (Sell) recently, so Brian sold it on Tuesday for an impressive return of 111.2%. He also sold Vermilion Energy (VET) and NOW (DNOW) for losses as the move into oil didn’t work out as expected. Meanwhile, the editor went back to the good old tech space for today’s addition of Himax Technologies (HIMX), which makes semiconductors that are critical components of flat panel displays. Rising earnings estimates for 2020 and 2021 have given the stock an enviable Zacks Rank #2 (Buy) status. The editor also likes HIMX’s valuation and believes that even a small improvement in its thin margins could mean big things for EPS. The company will report again in early February. Read the full write-up for more. In other news, this portfolio had a top performer in the session as Cassava Sciences (SAVA) jumped 23.92%. This stock is also the biggest gainer over the past 30 days by soaring 164.4%.

Surprise Trader: Half of Vericel (VCEL) was sold back in early December for a more than 36% return in just about a month. Dave held onto the other half of this advance cell therapies company because it just kept going up. And now it’s time to reward that patience. The editor sold the other half of VCEL on Tuesday for a more than 112% return in just under three months. The new buy is Kennametal (KMT), a Zacks Rank #2 (Buy) maker of high-speed metal cutting tools, tooling systems and wear-resistant parts. As part of the manufacturing – tools & related products space, it’s in the top 21% of the Zacks Industry Rank. KMT has beaten the Zacks Consensus Estimate in the past three quarters, and now has a positive Earnings ESP of 30% for the quarter coming after the bell on Monday, February 1. The stock was added today with a 12.5% allocation. See the full write-up for more on today’s moves.

Counterstrike: The portfolio cashed in three big winners yesterday, and Jeremy is back on Tuesday with a couple more double-digit returns. Stamps.com (STMP) was sold for a 30.1% profit in about two-and-a-half months after coming into the 61.8% retracement from the earnings move lower. Meanwhile, half of Overstock.com (OSTK) was sold for 29.7% in just under two months. The editor is hanging onto half this position since it could see an extended move above $100. UPDATE: It's a good thing that Jeremy hung onto some OSTK, as the stock was the best performer among all ZU services today with a surge of 28.3%.

Income Investor: Back in the day, data storage company NetApp (NTAP) was one of the high-flying tech stocks that dominated the late ‘90s. It fell hard after the dot-com bubble burst, but seems to be finding new success and new opportunities in cloud services. The company beat on both the top and bottom lines in its fiscal second quarter report, and seems to be taking market share away from smaller competitors. NTAP began paying a divided in 2013 and currently yields about 3% on an annual basis. Maddy believes broad demand for cloud services will “help ignite profit growth” for the company, so she added NTAP on Tuesday. The editor also sold Verizon (VZ) for a 5.7% return. See the full write-up for more on today’s moves.

Marijuana Innovators: You probably remember that Dave sold Innovative Industrial Properties (IIPR) exactly one week ago for a return of 147%. Well, today he used some of those proceeds to increase the portfolio’s exposure to the production side of the business by adding Cronos Group (CRON). The company invests in firms that are licensed to produce and sell medical marijuana. Make sure to get all the specifics on this new addition in the full write-up. Also, this portfolio had two of the top performers today with HEXO (HEXO, +8.35%) and Aphria (APHA, +8%).

Zacks Short Sell List: This week's adjustment included only one change. The portfolio short-covered Etsy (ETSY, +2.4%) and replaced the position by adding NeoGenomics (NEO). Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short Sell List Trader Guide.

Until Tomorrow,
Jim Giaquinto

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