VIDEO: When Extreme Fear Can Bring Opportunity in the Market

In today’s Daily Rundown video, Chris Versace puzzles through what has been hitting the markets, what the portfolio is looking for from the market to put capital to work, and conditions that would lead us to add to our holdings. 

He also shares which portfolio positions are reporting this week, and why he suspects we’ll see good reports out of Axon AAXN and The Trade Desk TTD. 

Transcript

CHRIS VERSACE: Hey, everyone. Chris Versace here, Monday, August 5. And if you've been reading our comments the market is being ruled by fear. And that so far has led the S&P 500 and the NASDAQ composite into oversold territory earlier today.

Now, there have been a lot of concerns over the last couple of days about the speed of the economy, the earnings season, geopolitical tensions, and, more recently, Japan and the yen, and other factors, all of which have culminated in what we've described as simply a shoot first, ask questions later sentiment that has pervaded the market. Now, so far, as you know, over the last few days, we've been sitting on the sidelines, letting all of this play out. Granted, it has weighed on a number of our positions, but we didn't want to make any moves ahead of what we saw as more data coming-- that was Friday's disappointing employment report, but also today's reaffirming July service PMI reports that showed that part of the economy accelerating in the month of June.

So we have a increasingly mixed picture for the economy. We know that manufacturing is slowing, job creation is slowing per the employment report, arguably disappointing. But, at the same time, the services economy continued to strengthen, as I just mentioned, and odds are it's going to continue to do so given the rebound in new orders for that part of the economy reported by not only ISM but S&P Global as well.

So, even though we've been sitting on the sidelines, we've been waiting for signs that the worst of what we were seeing, the extreme fear in the marketplace, the anxiety was nearing an end. And I can say that, yes, earlier today, the major market indices-- S&P 500 and NASDAQ composite-- pushed into oversold territory. The VIX, or the Volatility Index, pushed into way overbought territory. And, as I mentioned too, extreme fear was registered on the Fear and Greed Index. All of these say we could be nearing the end of the worst.

So here we are and what we're doing now is saying, OK, perhaps now it is time to get ready to get off the bench. So to get ready to get off the bench, that means we are revisiting the shopping list that we shared with you earlier today.

What we want to identify are which companies are simply seeing moves that are extremely overdone relative to the fundamentals, relative to the earnings outlook for the second half of the year and beyond. And some of the names that have gotten particularly hard hit in the portfolio-- Qualcomm, Universal Display, and a few others-- we shared our feelings and thoughts with you when they reported last week.

Qualcomm-- smartphone market is rebounding, but the company also has opportunities in PCs, which they never really had before because of AI on device and that uptick. With Universal Display, it's not just smartphones and increasing screen sizes and foldables, but it's the push into the tablet market also the PC market with organic light emitting diode displays that will accelerate in the back half of the year. So we're going through each of these positions saying, where are the fundamentals continuing, if not improving, to be very good for their businesses versus where are the stocks, how far have they pulled back, are they overbought? And it's that combination that we're looking for that says this is overdone, it makes sense to put capital to work. And that's what we will be doing later today, tomorrow, in the next couple of days.

So it's going to be potentially an opportune time. But remember, like a good carpenter, we're going to measure twice before we cut. In other words, we're going to make sure that the worst is priced into the market, the worst is priced into the positions that we elect to move forward with rather than be head faked. So we may not catch the very bottom in each of these stocks, but we want to, where we can, improve our cost basis, build up our position in a prudent manner. So that's the approach that we will be taking.

So the message really is that's our plan and we want to make sure that you check your alerts. Why? Because if we do make any of these moves with the portfolio, we want to make sure that you are making them right there with us.

Outside of this, we don't have a lot of economic data this week. We do have a couple of Fed heads speaking, but we do have several positions in the portfolio reporting. And, tomorrow, that means Vulcan Materials, Builders FirstSource, as well as Axon. And I will say that what we heard out of Motorola Solutions last week was very positive. That tends to be our leading indicator for Axon. So they should have a good report. Remember there, it's the continued push into recurring services, higher margin services, and cloud. We want to continue to watch that mix shift in the business. That should drive margins higher, drive earnings power higher.

And then later this week, we have Trade Desk, which we continue to think is extremely well-positioned, even after the pullback, just given the accelerating shift in digital advertising, but also what the-- what is going to be the contentious presidential election season, which I think will foster a real surge in digital advertising. But, remember, too, they've recently inked a relationship with Netflix. And Netflix, as we know, is leaning into their advertising revenue business model, so a number of positives we think will come out later this week.

But, remember, be sure to check your alerts. Because if we sense it's the time to make some moves with the portfolio, we want you right there with us. Thanks for watching, folks. And, again, stay tuned. We've got a lot more coming.

At the time of publication, TheStreet Pro Portfolio was long AXON and TTD.