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Does It Have to Get Worse Before It Gets Better?

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After today’s broad-based market selloff, a few of the editors are getting a bit more cautious for the short-term. Stocks may have to correct more than expected before the next leg higher. “Today’s sell off felt very weak,” said Jeremy in Counterstrike. “(E)verything was in the red. There was no sector rotation, no bright spots and simply no feeling that we would bounce right back tomorrow.” 

On Thursday, the NASDAQ was the biggest loser with a drop of 1% to 6089.5, but the S&P was close behind with a slip of 0.94% to 2409.8. The Dow dropped by 0.74% to 21,320. 

So it might get worse before it gets better…but the important thing is that the editors are confident that it WILL get better. None of them have amended their bullish year-end targets from last week’s meeting. They still see the S&P between 2500 and 2800 at the close on December 31. There just might be a mid-year detour that warrants a bit of defensiveness. 

“I am finding it hard to get in a bearish mood with the economy heating up (ISM Services was a big winner today to go along with ISM Manufacturing on Monday)…earnings growth is back…and stocks are a much better value than bonds,” said Steve in RTA. 

Stocks Under $10 was the most active portfolio on Thursday as Brian sold three names for double-digit profits and added one back. Also, Insider Trader and Momentum Trader picked up new positions, while RTA bought more shares of an existing one. 

Today's Portfolio Highlights: 

Stocks Under $10: It was a busy and very profitable day for the portfolio, as Brian decided to sell three names for big gains each. The service will now have less than its full complement of 20 names, so get ready for more buys coming down the road. But for today, the sells include: 

• Syneron Medical (ELOS, +35.7%)
• Xcerra Corp. (XCRA, +24.7%) and
• AU Optronics (AUO, +11.8%) 

The editor wasted no time in filling one of the open spots by adding Hill International (HIL). As a construction company, this position helps to diversify the portfolio away from all of its tech exposure. The company may be at the start of a turnaround after reporting breakeven earnings results in its most recent quarter. Analysts have also been raising their estimates for this year and next. Read the full write-up for a lot more on all of these moves, including the limit to use for HIL. 

Insider Trader: In its first quarter, Teledyne Technologies (TDY) beat the Zacks Consensus Estimate and raised its full-year EPS guidance. Subsequently, the President & CEO and a Vice President each bought shares of their own company. Tracey was impressed that members of top management would make such large purchases, so she decided to follow suit and add TDY on Thursday. Combining sidelined cash and proceeds from the sale of MOS, the editor took an 8% position in the company. The full write-up has more specifics. 

Reitmeister Trading Alert: MKS Instruments (MKSI) received some good news today when a major firm initiated coverage on the chip equipment and testing company as a Buy. However, the tech sell off hindered the positive reaction this morning, which provided Steve with the perfect opportunity to add more shares. The editor says that MKSI offers some of the best earnings momentum in the market, so he was happy to bring the portfolio’s allocation up to 7.2%. The full write-up has more. 

Momentum Trader: With technology still under pressure, Dave wanted to add a stock with limited info-tech and semiconductor exposure. So he picked up a 12.5% allocation in KLX Inc. (KLXI), which is the world’s largest independent aerospace parts distributor. The company had a strong earnings beat last quarter and is now approaching its 52-week highs. The complete commentary has a lot more on KLXI, including a breakdown of its chart. 

All the Best,
Jim Giaquinto

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