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Worst Day of the Year as China Punches Back

The major indices just suffered through their worst session of 2019 as China didn’t wait long to retaliate against President Trump’s tariff threat from last week.  

The country allowed the yuan to drop to its lowest level against the dollar in 10 years. It also suspended purchases of U.S. agricultural products and may slap on its own tariffs somewhere down the road.

These moves come just a few days after the President Tweeted about an additional 10% tariff on $300 billion worth of Chinese goods beginning September 1.

The market fears that a resolution to this trade conflict could be a far way off and grow even more contentious moving forward.

The NASDAQ plunged 3.47% (or about 278 points) to 7,726.04, while the S&P dropped 2.98% to 2844.74. The Dow slipped 2.9% (or around 767 points) to 25,717.74. That’s one day!

One of the few bits of good news on Monday was that stocks managed to pare some of the losses in the last hour. For example, the Dow was down more than 950 points at its worst of the session.

Stocks have actually been slipping ever since last Wednesday when the Fed Chair talked about the quarter-point rate cut as a “midcycle” move that does not guarantee future easing. And the day after was the tariff threat Tweets.  

Last week, the NASDAQ plunged 4%, while the S&P slipped 3.2%. Both of these indices are now on 6-day losing streaks. The Dow declined 2.7% and has been in the red for 5 days in a row.

The major indices were right around all-time highs before all this drama got started. Now they’re 5% or more away from those records in just a few days.   

Investors are left wondering if there’s more downside to come or if the market will bounce back a bit. It’s hard to make an educated guess when an unexpected headline or Tweet can send stocks dramatically higher or lower at a moment’s notice.

The important thing to remember is that the strong fundamentals of this economy haven’t changed. We’re coming to the end of a better-than-expected earnings season and unemployment remains historically low.

So let’s just take a breath and see what happens in the days ahead…  

Today's Portfolio Highlights:

TAZR Trader: With the potential for further downside in the market, Kevin doesn’t feel like holding genomic analysis company Invitae (NVTA) through its earnings report tomorrow. Instead, the editor decided to secure a more than 39% return in a little over two months for this small and innovative company. He’d be interested in adding it again around $20.

Meanwhile, a sharp downturn like today’s is a great time to take a chance with something like the NASDAQ 100 3X Bull ETF (TQQQ). Kevin added this fund on Monday with a 5% allocation and would add more if the downturn continues toward the 200-day moving average. The editor also added to the portfolio’s Domo (DOMO) position as it tests the June lows just above $25. Read the complete commentary for more.

Surprise Trader: Selling into a panic is a bad idea. Instead, Dave decided to use this sharp downturn to add a 12.5% allocation in InterActive Corp. (IAC), which owns popular websites and Tinder. The company has an impressive Earnings ESP of 36.5% for the quarter coming after the bell on Wednesday, August 7. Read the complete commentary for more on this new buy. 

Counterstrike: One good thing about a sharp selloff in a strong economy is the opportunities that it opens… if you don’t panic. Jeremy has been through several of these pullbacks, so he has no problem dipping his toe into western footwear & apparel company Boot Barn Holdings (BOOT) and toy staple Hasbro (HAS) with 4% allocations each. Both of these companies pulled back despite strong quarterly reports, which included earnings surprises of more than 50%. He also added 5% to the Deckers Outdoor (DECK) position.

But that wasn’t all. Other moves on Monday included short-selling GoDaddy (GDDY) with a 5% allocation after the cloud-based products company moved higher despite a weak quarterly report. Finally, Jeremy got out of his silver play ProShares Ultra Silver (AGQ) with a nearly 17% return in less than a month and also got rid of a couple losers. Read the complete commentary for more on all of today’s moves.  

Technology Innovators: Last week, the portfolio sold Facebook (FB) for a nice double-digit return amid the social media giant’s many headwinds. Today, Brian picked up another FAANG by adding Alphabet (GOOGL), which posted a strong quarterly report recently and has less friction than FB at the moment. In the current environment though, the editor really appreciates that the stock is relatively insulated from the trade war due to the breadth of its operations around the world. He believes GOOGL can absorb most of the impacts on the currency fronts. Read the full write-up for more. 

Black Box Trader: The portfolio had big changes this week with six swaps in all. The stocks that were sold on Monday included:

• The Progressive Corp. (PGR)
• American Int'l Group (AIG)
• Principal Financial Group (PFG)
• Jefferies Financial Group (JEF)
• Dick's Sporting Goods (DKS)
• Skechers U.S.A. (SKX)

The new buys that filled these spots are:

• AmerisourceBergen Corp. (ABC)
• CBRE Group (CBRE)
• Cigna Corp. (CI)
• Diebold Nixdorf (DBD)
• KBR, Inc. (KBR)
• United Airlines (UAL)  

Read the Black Box Trader’s Guide to learn more about this computer-driven service designed to take the emotion out of investing.

All the Best,
Jim Giaquinto

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