A Slow and Painful Grind…

Nicholas Vardy

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

Global stock markets can’t seem to catch a break. After six straight down days, the markets rallied last Thursday, only to give back their gains with a sharp drop on Friday.

With the market down a whopping six weeks in a row, this is the longest negative stretch for the Dow Jones Industrials since 2002 and for the S&P 500 since 2008. The NASDAQ is now negative for the year, while the S&P hangs on to a slim gain of 1.1% year to date.
I continue to expect that the market will rally sharply at some point. That said, the market’s relentless downward grind has surprised me. And the market’s “head fake” a couple of weeks ago took me off guard.
But a sense of perspective is important. A casual glance at the charts will convince you that this sell-off — so far — isn’t nearly as bad as the sell-off in the markets last May. (Remember the “flash crash?”) You are, however, starting to hit your (even quite wide) stops in some of your positions. This past week, you were stopped out of Sohu.com (SOHU) at a loss as the Chinese Internet story lost its legs. In addition, you stopped out of Alexion Pharmaceuticals (ALXN) on Friday for a small loss. (Since ALXN recorded a two-for-one stock split on May 23, the August $100 call options that I originally recommended became August $50 call options, which last traded at $1.31.) You also hit your stop in Silvercorp Metals (SVM), as the price of silver continued to tumble. As usual, when you stop out of a stock, sell the related options. All except one of your positions in the Bull Market Alert portfolio now are HOLDs. 
I have a number of profitable investment ideas in my files — including a compelling play on the remarkable success of Apple’s iPad2 — and a handful of global stock markets that have held up well during the recent sell-off. But with financial markets acting sickly, this is not a good time to put your capital at risk. So it’s best to keep you powder dry until markets settle.
Although I won’t be making a formal Bull Market Alert recommendation this week, I want to call your attention to a piece I wrote in my weekly e-letter, The Global Guru, a couple weeks ago. It discussed five individual exchange-traded funds (ETFs) that I sometimes use to help minimize the downside of my client portfolios. One of them is the UltraShort Euro ProShares (EUO), which is part of your current portfolio.But there are four other positions that you may wish to consider as well.
Portfolio Update
Alliance Resource Partners L.P. (ARLP) traded flat this past week. With Japan’s economy showing signs of recovery, coal prices may rebound in the second half of the year as producers are geared to scale up operations to cope with the surging demand. This keeps the long-term case or ARLP bullish. For now, though, trading below its 50-day moving average, ARLP is a HOLD.
UltraShort Euro ProShares (EUO) jumped 4.17% this past week. The euro hit this month’s low on Friday because of contradictory signals from European policy makers on how to best address the Greek debt crisis. Slicing through its 50-day moving average, EUO is now a BUY.
Bank of Ireland (IRE) has entered a virtual free fall. This news-driven stock will soar on any good news. But holding this position is enough to test anyone’s contrarian mettle. That’s why you need to think of it as an option. Trading below its 50-day moving average, IRE remains a HOLD.
Nabors Industries (NBR) dropped 4.81% this past week. I still am looking to time our exit on this, as it bounces back toward the $30 level. Until then, NBR is a HOLD.
National Bank of Greece SA (NBG) dropped 10.6% this past week. German Finance Minister Wolfgang Schaeuble has called for an extension of maturities of outstanding Greek sovereign bonds by seven years. NBG remains a HOLD.
Novo Nordisk A/S (NVO) dropped 2.49% this past week. The company has increased its earnings by 23% over the past year. Slipping below its 50-day moving average, NVO is back to a HOLD.
Rayonier Inc. (RYN) dropped 4.64% this past week. RYN earns 45% of its earnings from exports, and the cheap U.S. dollar is boosting earnings. RYN now is a HOLD.
ELEMENTS Rogers Intl Commodity Agri ETN (RJA) dropped 1.28% this past week — but is actually slightly up over the past month. Trading just below its 50-day moving average, this bet on agricultural food prices remains a HOLD.
Toyota Motor Corp. (TM) rose slightly this past week. The automaker on Friday predicted operating profit would fall 35% to 300 billion yen ($3.7 billion) in the fiscal year ending March 2012, compared to fiscal year 2011. Although I don’t see a significant downside to the stock, I am moving Toyota to a HOLD.


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