Stocks Recover Most of Recent Selloff on Tech Turnaround

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Yesterday’s rotation out of tech may have gone a bit too far, because the NASDAQ recouped more than half of the recent selloff on Tuesday. The other major indices also bounced back in a wide-ranging rally that encompassed both the growth and recovery names.

Tech has come under heavy pressure over the past several weeks, and especially after the FOMC statement on September 22. Fed Chair Jerome Powell suggested that we are nearing the start of tapering, ultimately sending the NASDAQ on a five-day losing streak amid rising rates. The skid was finally broken on Friday, but then the index plunged 2.14% on Monday.

But that might have been too much. The NASDAQ rose 1.25% (or about 178 points) today to 14,433.83, recovering a good amount of the recent pullback. The turnaround of the FAANGs was just as dramatic, especially with Facebook (NASDAQ:FB) rising more than 2% just a day after dropping nearly 5% due to outage and whistleblower problems.

Meanwhile, Netflix (NASDAQ:NFLX) jumped over 5%, while Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Alphabet (NASDAQ:GOOGL) (GOOG) each rose by 1% or more. Furthermore, NVIDIA (NASDAQ:NVDA) jumped more than 3.6% and Microsoft (NASDAQ:MSFT) advanced 2%.

ALL of these stocks were down sharply on Monday.

The S&P was up 1.05% to 4345.72, while the Dow rose 0.92% (or about 311 points) to 34,314.67. The losses yesterday were 1.3% and 0.94%, respectively.

“The back and forth is really hard to trade. Today felt like one of those melt up days we saw all summer, but the last hour was sold hard. That tells me, this market is still a bit nervous,” said Jeremy Mullin in Counterstrike.

This heavy week of economic data continued on Tuesday with the ISM Services report, which came to 61.9 for September. The print was slightly better than 61.7 in August and expectations for just under 60. The report might not seem that impressive, but we should remember that any result over 50 indicates expansion.

The major report on Wednesday will be ADP employment, which has been quite a disappointment of late. Last month, the 374K jobs added to private payrolls fell well short of expectations for 600K. The month before was nothing to write home about either.

The ADP report will be the first of three consecutive sessions of important jobs data, followed by the usual jobless claims print on Thursday and the all-important Government Employment Situation on Friday.

Today's Portfolio Highlights:

Stocks Under $10: The strong session on Tuesday gave Brian a chance to mix up the portfolio by adding two names and selling three. The new buys are zinc miner Nexa Resources (NEXA) and oil patch play Now Inc. (DNOW). NEXA is a Zacks Rank #1 (Strong Buy) that value players will love, while margins moved to 8.4% from 1.8% in recent quarters. DNOW is a Zacks Rank #2 (Buy) that has beaten the Zacks Consensus Estimate in three of the past four quarters. Meanwhile, the editor sold AXT Inc. (NASDAQ:AXTI) for a slight gain in two weeks as part of his move to cut direct chip exposure. He also dumped two other names that were just "down too much". Read the full write-up for all the particulars on today's action. In other news, this portfolio had the best performer among all ZU services on Tuesday as Diana Shipping (NYSE:DSX) advanced 8.7%.

Surprise Trader: Things will be getting a lot busier at this portfolio with a new earnings season about to begin. However, there are still a few stragglers from last season that have yet to report. For example, iconic jeans maker Levi Strauss (NYSE:LEVI) takes center stage after the bell tomorrow. This Zacks Rank #2 (Buy) is on a nine-quarter winning streak of beating the Zacks Consensus Estimate. It’s impressive average surprise over the past four quarters is more than 92%, while the most recent beat more than doubled expectations. With a positive Earnings ESP of 5.82% for tomorrow’s report, Dave thinks that LEVI is poised to continue its streak of success. The editor added LEVI on Tuesday with a 12.5% allocation, while also selling the rest of BJs Wholesale (BJ) for a 3% return in less than two months. Learn more about today’s moves in the complete write-up.

Home Run Investor: Is there such a thing as autumn cleaning? That's pretty much what Brian did across all his portfolios on Tuesday, as the market rally provided a great opportunity to exit all direct exposure to the chip space. The big winner in this service was MaxLinear (MXL), which provides radio-frequency analog and mixed signal semiconductor SoC solutions. The position brought a nice return of 41.5% in about eight months. The editor also sold two other chip names today, as well as a couple positions that "moved past the point of no return". Make sure to read the full write-up for specifics on Brian's moves and get ready for at least two new buys tomorrow. By the way, this portfolio had a top performer today as Euroseas (NASDAQ:ESEA) rose 8%.

TAZR Trader: With the appetite for risk and dip-buying on the rise today, Kevin decided to add more to his Qualcomm (NASDAQ:QCOM) and Luminar Technologies (LAZR) positions. Read the full write-up for more.

Technology Innovators: By now, you've probably heard that Brian got out of direct chip exposure in all of his portfolios on Tuesday. That meant selling four names from this service today. The big winner was Diodes (NASDAQ:DIOD), which brought a return of 16.5% in four months. Also, Silicon Motion (NASDAQ:SIMO) exits with an advance of more than 9% in under five months. The full write-up has the details on all stocks that were sold today.

ETF Investor: Ever since interest rates jumped after the FOMC meeting, the projected earnings for high-flying tech stocks appear less attractive. As a result, such stocks have come under pressure lately after surging last year due to pandemic-driven trends. That means SPDR SP Internet ETF (XWEB) is vulnerable. Neena added this equal-weighted fund in August 2020 to gain exposure to the then-hot areas of Internet retail, software, and services. But that was then and this is now. The ETF is rebounding today after a sharp sell-off on Monday, so the editor saw a chance to sell XWEB on Tuesday for a more than 28% return.

Zacks Short Sell List: Half of the portfolio was replaced in this week's adjustment, and all of the short-covered names were positive. We even had a double-digit winner! The stocks that left the portfolio on Tuesday were:

• Enphase Energy (NASDAQ:ENPH, +24.3%)
• Overstock.com (NASDAQ:OSTK, +8.9%)
• JOYY Inc. (NASDAQ:YY, +4.1%)
• AppLovin Corp. (APP, +2.6%)
• The Clorox Co. (NYSE:CLX, +1.3%)

The new additions that filled these spots included:

• Huazhu Group Ltd. (NASDAQ:HTHT)
• JD.com (NASDAQ:JD)
• Las Vegas Sands (NYSE:LVS)
• Nike (NYSE:NKE)
• TaskUs (TASK)

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

Have a Good Evening,
Jim Giaquinto

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