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Dow has Worst Session of the Year on Covid, Inflation Concerns

A market already nervous about sharply-rising inflation now gets to worry about the Delta variant too as cases are on the rise. This one-two punch led to a significant pullback to begin the week on Monday, including the Dow’s worst single-day plunge of 2021 so far.

The index came off its lows by the end of the day, but still plunged by 2.09% (or about 725 points) to 33,962.04. The S&P declined 1.59% to 4258.49 and the NASDAQ slipped 1.06% (or around 152 points) to 14,274.90.

Stocks are coming back from their first negative week in the past four. Investors had to deal with a couple indicators showing inflation on the rise, namely the CPI soaring 5.4% year over year and the PPI up 7.3%. Of course, we also got good numbers for retail sales and jobless claims, along with a nice start to earnings season.

The concern about the Delta variant is very real out there. Nobody wants to see a new wave of covid, especially when we thought it was on the way out. But will today’s selloff prove to be an overreaction? In the short term, it really doesn’t matter.

“The fear of 2020 is fresh in many minds, so whether it is noise or not, people are panicked,” said Jeremy Mullin in today’s Commodity Innovators. “When it comes to markets, this means slower growth and possibly supply disruptions in hard hit Asian countries.”

In the longer run, we may look back on the recent sluggishness as the market’s way to pull back a bit from setting so many new highs of late. The editors have certainly been waiting from some give back to pick up stocks at more reasonable prices. For now though, it looks like we’ll be paying attention to covid headlines again.

"Today's COVID-driven sell-off seemed a bit overdone, and I wouldn't be surprised if some of the hardest-hit sectors caught a bid tomorrow. I will be looking to add more to the portfolio if we continue lower this week," said Dan Laboe in Headline Trader.

Meanwhile, earnings season shifts into another gear this week. The banks gave us a solid start last week, and we’ve already received a strong release from IBM (IBM). After the bell today, the company reported a positive earnings surprise of more than 3.5% and its best revenue in years (+3% year over year). The stock gained about 3% afterhours, as of this writing.

One of the biggest reports of the week comes after the bell tomorrow when Netflix (NFLX) becomes the first FAANG to take centerstage. Shares of the streaming giant bucked the downward pull on Monday and gained 0.37%.

As of this writing, stock futures are up. Will there be a rebound tomorrow? We’ll see...

Today's Portfolio Highlights:

Headline Trader: When Uber (UBER) dropped sharply after a mixed quarterly report back in February, Dan saw dollar signs and picked up this market-disrupting ride-sharing pioneer. He feels the same way today amid a slide in the stock during this market selloff. Shares are reaching oversold territory less than three weeks before a quarterly report that’s expected to demonstrate record revenues. The editor thinks it’s a no-brainer to buy more UBER on its dip before this pandemic-proof company springboards off the upcoming quarterly report. Read the complete commentary for more.

Insider Trader: The past five sessions have seen shares of Hibbett (HIBB) decline by about 10%, which seems to have prompted two insiders to buy shares of this athletic-inspired fashion retailer. On July 15, the CIO and the General Counsel added 2200 and 2000 shares, respectively. Tracey found this interesting for two reasons: 1) HIBB is still up 86% year to date and 2) the usually-conservative GC was one of the buyers. The editor thinks these buys are a signal that things are going well behind the scenes. Therefore, she added this Zacks Rank #1 (Strong Buy) on Monday with a 10% allocation. Read a lot more about this buy in the full write-up.

Surprise Trader: Even if this wasn’t earnings season, you can bet that Dave would be buying on a down day like this. “Buying low and selling high is the name of the game,” he said. To kick things off this week, the editor picked up Graco (GGG) from the highly-ranked Manufacturing – General Industry space (top 22%). The company makes equipment and systems used to measure, move, control, spray and dispense fluid and powder materials. GGG has beaten the Zacks Consensus Estimate for four straight quarters and now has an Earnings ESP of 7.3% for the report coming after the bell on Wednesday, July 21. This Zacks Rank #2 (Buy) was added with a 12.5% allocation. Dave will wait on deleting something since there’s “no reason to sell into a rough day like this”. Read the full write-up for more.

Counterstrike: With fear building in the markets, ProShares Ultra VIX ShortTerm Futures ETF (UVXY) has certainly done its job. Jeremy added this name on Friday in preparation a day just like this, and today he sold it to lock in a more than 26% return. Grayscale Bitcoin Trust (GBTC) was also sold as it approaches max loss with Bitcoin coming under pressure. By the way, the editor added Direxion Daily S&P 500 Bear 3X Shares (SPXS) last week as another short bet, which he will continue to hold for now.

Black Box Trader: This week's adjustment switched out six positions in the portfolio. The stocks that were sold today included:

• International Paper (IP)
• Abercrombie & Fitch (ANF)
• Jabil (JBL)
• Olin Corp. (OLN)
• Athene (ATH)
• Alcoa (AA)

The new buys that filled these spots were:

• Halliburton (HAL)
• LKQ Corp. (LKQ)
• Nucor (NUE)
• Santander Consumer (SC)
• Target (TGT)
• Textron (TXT)

Read the Black Box Trader’s Guide to learn more about this computer-driven service.

Options Trader: "It’s ironic that the two ‘concerns’ in the marketplace right now are inflation (too hot of an economy), and a potential slowing down due to a resurgence in the case counts (too slow of an economy). Leave it to the market to take such a schizophrenic position.

"In the meantime, earnings season is off to a great start. And that’s always an exciting time since stocks typically go up during earnings season. Should be a busy week,"
said Kevin Matras

All the Best,
Jim Giaquinto

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