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Why You Need to Buy Today's Stock Market Dip

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Today it looks like the market is finally going to sell off 1%. Unless of course it pulls one of those final hour reversals like it’s done in the past. This would mark the first time the market has sold off at least 1% since October.

For some people it’s just the flush they’ve been waiting for. The post-Election Day rally has the large caps up over 16%. Valuations have become a little bit stretched, with much of the move betting on reforms out of the Trump administration. Namely, we are waiting for the tax reform and infrastructure spending details. For now, that’s just what we are doing, waiting.

With the first order of business being the repeal and replacement of Obamacare all eyes are on Capitol Hill. Not because this new healthcare bill is going to have a dramatic impact on the stock market but because this bill is the first test for Trump’s policies. If this doesn’t go smoothly, how can investors trust further reforms will be implemented smoothly?

Depending on where the market ends up today, I still believe we are just testing the bottom end of the trading range. We will continue to chop around until we get the next round of market moving events. The market is stuck between several economic reports, the Fed rate hike and the next round of earnings in about three or four weeks. In the meantime, you need to position yourself in stocks with the strongest chances of long term success. This pullback could be an opportunity to load the boat for the next leg higher.

While shopping for deals today I came across stocks which are Zacks Rank #1 (Strong Buy) stocks that also have a VGM Composite Score of A. That means these stocks are checking the boxes on not only being great values, but also have huge growth potential and explosive momentum.

Here are five stocks in the strongest position to push higher on a bounce:

Burlington Stores (BURL - Free Report)

Burlington Stores, Inc. operates as a retailer of branded apparel products in the United States. The company offers fashion-focused merchandise, including women’s ready-to-wear apparel, menswear, youth apparel, baby products, footwear, accessories, home décor and gifts, and coats. As of August 25, 2016, it operated 570 stores in 45 states and Puerto Rico.

Shares of Burlington Stores have far outpaced the rest of its industry. BURL is up 78.5% over the last year where the industry as a whole is only up 7.75%. A big chunk of that divergence has happened since BURL’s last earnings report where shares hit a new 52-week high over $97. Since then the stock has retreated a bit to support near $93.50 as the Commodity Channel Index (CCI) has cooled to -90.

Best Buy (BBY - Free Report)

Best Buy Co., Inc. operates as a retailer of technology products, services, and solutions in the United States, Canada, and Mexico. The company operates through two reportable segments, Domestic and International. Its stores provide consumer electronics, such as home theater, home automation, digital imaging, health and fitness, and portable audio products; computing and mobile phones, including computing and peripherals, networking, tablets, smart watches, and e-readers, as well as mobile phones comprising related mobile network carrier commissions; and entertainment products, such as gaming hardware and software, movie, music, technology toy, and other software products.

Best Buy had a huge move following earnings in mid-November of last year. Bullish prospects helped push the stock up from under $40 to over $49 in less than a month. From those new highs the stock retreated, establishing a firm double bottom support level at $41.70. The stock is currently bouncing around within a consolidation range between $41.70 and $46.

Dycom (DY - Free Report)
Dycom Industries, Inc. provides specialty contracting services in the United States and Canada. The company offers various specialty contracting services, such as engineering, construction, maintenance, and installation services comprising placement and splicing of fiber, copper, and coaxial cables to telecommunications providers. It also provides tower construction, lines and antenna installation, and foundation and equipment pad construction for wireless carriers, as well as equipment installation and material fabrication, and site testing services; and installs and maintains customer premise equipment, such as digital video recorders, set top boxes, and modems for cable television system operators.

Dycom shares have chopped around between $70 and $98.47 over the last year. The stock saw a huge jump on earnings, attacking the top end of the range before selling off to the earnings gap today. The top end of that earnings gap is $90, less than a buck away from the stock’s price today. With the CCI down at -168 I’d be looking to peck at this one here in the hopes of a bounce at the top end of that gap up.  

Cosan Limited

Cosan Limited, together with its subsidiaries, engages in fuel and natural gas distribution, logistics, lubricant, sugar and ethanol, and fuel businesses primarily in Brazil and internationally. The company’s Raízen Energia segment produces and markets various products derived from sugar cane, including raw sugar, and anhydrous and hydrated ethanol. Its Raízen Combustíveis segment distributes and markets fuels, primarily through a franchised network of service stations under the Shell brand in Brazil. The company’s COMGÁS segment distributes piped natural gas to customers in the industrial, residential, commercial, automotive, thermogeneration, and cogeneration sectors in part of the State of Sao Paulo.

CZZ shares have been struck down at $9.50 twice in the last year. Today’s selling has taken the stock down below the 50-day moving average, approaching the swing low of $7.73. The CCI is coming down from overbought to the zero line. I’m looking for a bounce of the CCI at the zero line to add a position.

Telefonica (TEF - Free Report)

Telefónica, S.A. provides mobile and fixed communication services primarily in the European Union and Latin America. The company’s mobile and related services and products comprise mobile voice, value added, mobile data and Internet, wholesale, corporate, roaming, fixed wireless, and trunking and paging services. Its fixed telecommunication services include PSTN lines; ISDN accesses; public telephone services; local, domestic, and international long-distance and fixed-to-mobile communications; corporate communications; supplementary and business oriented value-added; video telephony; intelligent network; and telephony information services. 

Of all the stocks on this list, TEF has had the most steady ride. After bottoming out shortly after Election Day near $8.15 the stock has marched higher consistently. The 50-day moving average has a positive slope and is currently well below the current price at $10.07. This should provide plenty of support on any dips lower. The CCI has been above the zero line since early February on this stock. I’m looking for a bounce of the CCI at the zero line to give me a fresh entry in an attempt at new highs.

Bottom Line

We’ve been waiting for a dip to buy stocks or add to existing holdings. This pullback may be the exact opportunity we have all been looking for. By leaning on the time-tested power of the Zacks Rank and the new VGM Composite Score we can find stocks with huge upside potential we can buy today.

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