U.S. Markets Consolidate as a Chinese Stock Market Crash Looms

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

It was mixed news for U.S. stock markets this past week. The Dow Jones fell 0.48%, the S&P 500 rose 0.07% and the NASDAQ gained 0.74%. Meanwhile, the MCSI Emerging Markets Index rose slightly by 0.21%.

Big gainers included Illumina Inc. (ILMN), which rose 4.36%; the Market Vectors Biotech ETF (BBH), which gained 1.60%; and Union Pacific Corporation (UNP), which gained 1.23%. The Vanguard Russell 2000 Index ETF (VTWO) also hit a new 52-week high.

Three of your positions fell below their 50-day moving averages and changed to a HOLD. These include the iShares S&P Global Timber & Forestry ETF (WOOD), Actavis plc (ACT) and iShares MSCI Philippines (EPHE).

U.S. markets were largely in a holding pattern this past week. That’s nothing new. Looking at some of my favorite technical indicators, the U.S. market has not been trending since late March. Looking at the chart of the S&P 500, it is at a critical juncture. If it is unable to break out to the upside in the next few days, we are looking at a rather ominous “triple top.”


The same cannot be said of emerging markets, which have broken out to the upside and are trading at six-month highs. This is largely explained by China’s 23% weighting in the MSCI Emerging Markets Index and the mania that has gripped the Chinese stock market. Some Chinese investors are taking out second mortgages to play the stock market. Indeed, 1.68 million new brokerage accounts were opened in the week ended April 10.

Valuations are through the roof. In China’s Shenzhen market, half of the stocks followed by analysts have forward price-earnings (P/E) ratios above 50. In the Shanghai market, only about one-third of stocks have forward P/E ratios above 50. By way of comparison, less than a tenth of the stocks in the U.S.-based small-cap Russell 2000 have a forward P/E above 50.

Here’s my prediction. The Chinese citizens taking out second mortgages are going to lose a lot of money. This kind of bubble-induced frenzy of buying always ends with a painful crash.

Exclusive  How to Invest in Cryptocurrency

Portfolio Update

Berkshire Hathaway (BRK-B) dipped 1.13%. In a rare occurrence, BRK-B touched down to its 200-day moving average (MA) last week. BRK-B has not stayed beneath this level since January 2011. Each time BRK-B did hit this level, it resulted in a significant multi-month move higher. The addition of a few other positive chart indicators puts BRK-B at an excellent buying point. Technically, BRK-B is a HOLD.

Global X Guru Index ETF (GURU) remained largely flat last week. GURU takes the stock picks of the largest hedge funds and attempts to capitalize on them — and this strategy has worked out quite well in recent months. GURU’s 52-week high, and resistance ceiling, is very near the $27 price level. GURU currently is just under this price and has been making a concerted effort as of late to break above. GURU is a BUY.

Vanguard Russell 2000 Index ETF (VTWO) ended the week flat after dipping slightly from its 52-week high early last week. This play on small caps has been a winner so far this year, gaining consistently since the opening of 2015. VTWO remains above the 50-day MA and is a BUY.

Markel Corp. (MKL) lost 2.22%. MKL will report earnings on May 6 after markets close. MKL’s last earnings report reflected a 15.8% increase in earnings per share (EPS) on a year-over-year basis. With low corporate debt, good revenue growth and steady stock performance over the past quarter, MKL is poised to deliver another solid quarter. MKL is a BUY.

Union Pacific Corporation (UNP) gained 1.23% over the past five trading days. UNP will report earnings on Thursday before markets open. Major rail competitor CSX reported earnings last week, beating estimates by $0.01 EPS and reporting revenue in line with analysts’ estimates. CSX also reported that the strong U.S. dollar, as well as lower fuel prices and surcharges, helped their numbers. With UNP’s stock down over recent weeks, a similar earnings report could send UNP rallying higher. UNP is a HOLD.

Exclusive  Six Retail Stocks to Buy for Profiting from Holiday Season Sales

Google Inc. (GOOGL) rose 0.58% last week. Google will report earnings on Thursday after markets close. A Bloomberg BusinessWeek book due to publish next month cites credible reports that high-tech electric car manufacturer Tesla Motors Inc. was almost sold to Google back in 2013. This would have been an interesting Google acquisition indeed, and possibly one that could have seen Google entering the car-manufacturing business. GOOGL is a HOLD.

Illumina Inc. (ILMN) rose 4.36%, getting off to a tremendous start as the latest holding in your portfolio. ILMN reported favorable earnings yesterday to push the stock higher on strong volume. Illumina’s first quarter EPS was $0.91 vs. a $0.70 analyst estimate. Revenue came in at $538.6 million vs. a $524 million estimate. ILMN also raised its EPS outlook for the upcoming fiscal year. ILMN is a BUY.

Newly Updated Special Reports

As a courtesy, I invite you to view the newly updated version of The Top 12 Stocks for 2015, which features three of my top investment recommendations from the recent Orlando MoneyShow, as well as bonus picks from each of my fellow investment newsletter editors at Eagle. Also check out other recent reports: My Safest Bet on Booming Biotech, Alpha Opportunities: Where the Smart Money is Investing Now, Buffett-Beating Investment Strategies: 3 Ways to Outperform Berkshire Hathaway, Hedge Fund Secrets of the Masters and The $19 Trillion Key to IoT. These reports and others are available FREE on my website to you.

Nicholas Vardy

share on:

Like This Article?
Now Get Our FREE Special Report:
Alternative Investing: Investing in Timber

Stock Investor editor Paul Dykewicz reveals why investing in timber may be one of the best long-term portfolio strategies you'll find today.

Get Access to the Report, 100% FREE

previous article

Investing is a harsh taskmaster. Each day, cold, hard numbers tell you what you got right and what you got wrong. If you’ve been bullish on a country’s stock market and that country lights up the scoreboard with big gains, you feel vindicated about your powers of prognostication. Sometimes the country you tap for big gains is a turnaround story and one where the markets have been beaten down too far, too fast. That’s what the original Global Guru, John Templeton, did, investing only

share on:


Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Profits Alert
  • Hi-Tech Trader

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • Intelligence Report
  • Bullseye Stock Trader

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Technical Traders Alert
  • Success Trading Group


Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor