Did the Market Just Bottom?

Nicholas Vardy

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

The U.S. market pulled back for five consecutive days last week before rallying on Tuesday. By the close of the market yesterday, the Dow Jones had fallen 1.61%, the S&P 500 was down 1.22% and the NASDAQ pulled back 2.28%. Hit hard by the continued pullback in China, the MSCI Emerging Markets Index tumbled 4.65%.

You had one big gainer in your Alpha Investor Letter portfolio in Allergan plc (AGN), which spiked 7.10% on news of the sale of its generics business to Israel’s Teva Pharmaceuticals. Markel Corp. (MKL) continued to defy gravity by adding 0.98%. Both of these positions hit new 52-week highs, along with Google Inc. (GOOGL) and First Trust US IPO ETF (FPX).

You hit your stop on your long-time holding in the iShares S&P Global Timber & Forestry Index (WOOD).

The PureFunds ISE Cyber Security ETF (HACK) and iShares Currency Hedged MSCI Germany (HEWG) both fell below their 50-day moving averages (MA) and moved to a HOLD.

Also raise your stop in Illumina (ILMN) to $195 to ensure you lock in a gain in the stock.

2015 has been a tough year for stock market investors.

The U.S. S&P 500 is trading where it was back on Feb. 20. Fundstrat’s Thomas Lee recently noted that this has been only the second time since 1904 (!) that the S&P 500 has closed the first two quarters of the year with 0% gains.

But yesterday may have marked a crucial bounce in the U.S. stock market.

Here’s why…

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Many large fund managers also use the 200-day average as a measure of the market’s trend. So it’s always worthy of note when the most widely benchmarked index in the world, the S&P 500, gets close to violating this moving average and then a large amount of buying suddenly appears.

This happened both yesterday, as well as last month.

In addition, market sentiment made a huge jump yesterday from 7 to 20. That just may be the biggest one-day jump I’ve seen based on the seven different sentiment indicators tracked by the CNN Fear and Greed Index.

As a retail investor, your most sustainable edge in the stock market is psychology. That’s why over the years, I’ve trained myself to gain distinct pleasure from investing against Mr. Market’s mood swings.

That’s also why, on Monday, I invested in several of the worst-performing and technically oversold positions in my own 401(k).

Will I have caught the bottom of the market?

Time will tell.

After all, seasonality is still very weak, and August is rarely a big month in the markets.

But yesterday’s bounce off of the S&P 500’s 200-day moving average and sharp improvement in sentiment bodes well.

Portfolio Update

Vanguard Global ex-US Real Estate ETF (VNQI) lost 1.53% last week. U.S. real estate was the place to be in 2014 as VNQI’s sister fund, Vanguard REIT ETF (VNQ), rose 30%. Fast-forward to 2015 and your bet on VNQI is now the “hot property.” VNQI is up 5.3% year-to-date as compared to VNQ’s 1.5% loss (through July 17). VNQI is currently a HOLD.

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Vanguard Russell 2000 Index ETF (VTWO) gave back 2.27%. This well-diversified play on 2,000 small-cap stocks dipped to its 200-day moving average on Monday for the first time since Feb. 1 of this year. This bodes well for VTWO going forward, as it has not fallen below this level since October 2014. VTWO is a HOLD.

Markel Corp. (MKL) added 0.98% and hit a new 52-week high early last week. MKL may take a breather here and trade sideways as it works to consolidate the past month of gains. Traders will also be positioning themselves for MKL’s Aug. 5 earnings report due after markets close. MKL is a BUY.

Skyworks Solutions Inc. (SWKS) gave back 7.97% last week after reporting positive earnings on Thursday. SWKS reported $1.34 earnings per share (EPS) vs. a $1.28 analysts’ consensus EPS estimate. Sales revenue came in at $810 million vs. an $801.21 million estimate. MKM Partners, Topeka and Mizuho Securities all raised their price targets and reiterated a “Buy” rating. SWKS is a HOLD.

Allergan plc (AGN) spiked 7.10% to a new 52-week high on news that it signed an agreement with Teva Pharmaceutical Industries Ltd. under which Teva will buy Allergan’s global generic pharmaceuticals business for a total of $40.5 billion ($33.75 billion in cash and $6.75 billion in Teva stock). AGN will report earnings on Aug. 6 before markets open. AGN is a BUY.

Google Inc. (GOOGL) gave back 5.13%. Google came back down to Earth last week after taking a tremendous spike upwards on its stellar July 16 earnings report. GOOGL hit a new 52-week high early last week as well. GOOGL is a BUY.

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WisdomTree Japan Hedged Equity ETF (DXJ) lost 2.03% over the past five trading days. The rising dollar and falling yen trend has remained intact throughout 2015, and DXJ has been an excellent selection for capturing Japan’s gains this year. A broad base of investors also agree, as nearly $48 billion worth of new capital has been allocated to currency-hedged funds during the first half of this year alone. DXJ is a HOLD.

Hedged MSCI Germany (HEWG) lost 3.18%. HEWG is back to the 200-day MA once again after testing this robust price level just weeks ago. With much of the Greek debt drama put to bed (at least for now) and fading from the news media, European investments may come back into favor in a big way, especially as the fourth quarter nears. HEWG dipped below its 50-day MA to become a HOLD.

Nicholas Vardy

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It is turning out to be a tough 2015 for stock market investors. The U.S. S&P 500 is trading where it was back on March 31. Fundstrat’s Thomas Lee recently noted that this has been only the second time since 1904 (!) that the S&P 500 has closed the first two quarters of the year with 0% gains. The one strategy that has made diversification look bad over the past five years -- staying “dumb and long” in the U.S. stock market -- has also run out of steam. There seem to be few o

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