Feeling So Bad… That it’s Good

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
Well, I’m feeling pretty lousy. The S&P 500 has now fallen seven days in a row. The broad measure of U.S. stocks — which is the best-performing market in the world this year — has dropped 7.9% since Nov. 15. That dip includes its worst Thanksgiving-week decline since 1932. Although the economic news out of the United States has been decent, the news from Europe continues to depress market sentiment. 
The good news is that just when I’m feeling this bad, it’s usually good news for the market. In fact, by the technical measures I look at, the market is as oversold now as it has been since it’s “near-death experience” in early August and a long-forgotten weak stint in late June.
As I write this alert, U.S. futures are higher — signaling that the S&P 500 will end its losing streak. The news that Thanksgiving retail sales climbed to a record and that online retail sales jumped 26% this year, compared with last year, has clearly improved market sentiment. The spanner in the works is Europe, whose efforts to address the region’s sovereign-debt crisis continue to be greeted by skepticism in the market.
With European banking stocks continuing to suffer, your position in the National Bank of Greece (NBG) put options continues to be the top performer in the Bull Market Alert portfolio. Your May 2012 $.50 put options now are up 66.6%. Note that the profits from this position act as a hedge on your position in NBG stock.
In addition, the National Bank of Greece announced a reverse stock split. For each five shares of National Bank of Greece, you will receive one new share. The stock will start trading at the reverse adjusted price today. National Bank of Greece follows the lead of the Bank of Ireland (IRE), which implemented a reverse split on its ADR last month.
As a result of last week’s market gyrations, you were stopped out of Spreadtrum Communications (SPRD) for a gain of 15.6%. That’s a shame, as it had been one of your star performers in the Bull Market Alert portfolio. In fact, SPRD’s stock price took a strong bounce of 6.82% on Friday, directly off of the 50-day moving average, a strong technical “buy” signal.
Although I rarely do this in the Bull Market Alert, I am recommending that you buy back your position in Spreadtrum at market today and set a stop price of $16. (You can see the original investment for the stock here.) Because of the extreme volatility of the stock, the options are currently expensive. But if you want to take a highly speculative position that you’ll need to keep your eye on closely, I recommend the January 2012 $26 call options (SPRDA21124260000).
Spreadtrum is a position I continue to hold personally and on behalf of my clients at Global Guru Capital.
Other than this special case, we’re stuck in one of those "too late to sell, too scary to buy" scenarios that make trading very difficult. 

Portfolio Update

Alexion Pharmaceuticals (ALXN) remained nearly flat, dipping 1.27%. Alexion’s stock price continued its horizontal move last week. ALXN’s presentation this week at the Annual Piper Jaffray Health Care Conference in New York City may yield some significant insight on the future of the company. Although ALXN climbed above the 50-day moving average earlier in the week, ALXN is currently just below its 50-day moving average and is a HOLD.
Bank of Ireland (IRE) fell 8.88% last week when continued negative European sentiment took its toll on the stock. However, the Fitch Ratings agency recently affirmed its “AA-“ rating on a large portfolio of IRE’s outstanding U.K. mortgage bonds, shining some positive light on IRE’s financial health. IRE is currently a HOLD.
National Bank of Greece SA (NBG) dropped 10.42% over the past five trading days. The holiday-shortened week contributed to the negative price action in NBG last week. As of Sunday, Germany and France were reportedly looking at new methods to gain greater control over the fiscal budgets of neighboring European countries. This move would strengthen the euro-zone’s defenses again the looming European debt crisis. NBG remains a HOLD.
iPath DJ-UBS Livestock TR Sub-Idx ETN (COW) basically remained flat with a 0.10% gain. COW took an expected bounce last week off of its 50-day moving average (MA) and continued its textbook move up along its 50-day moving average. COW is a BUY.
Companhia de Bebidas Das Americas (ABV) dipped 5.03% last week. However, the IR Global Rankings ranked ABV among its “2011 Best Ranked Companies in Latin America” listing last week. Trading right at its 200-day moving average, ABV has touched just below this point twice since August 2011 and each time this occurred, ABV rallied intensely. Trading below its 50-day moving average, but well above its stop price, ABV is a HOLD.
ProShares Ultra S&P500 (SSO) lost 9.40%. The negative trend over the recent holiday week was tough on your position in SSO. As traders return to their posts this week, this oversold position may experience a nice rebound. SSO is a HOLD.
MasterCard Inc. (MA) dropped 3.67% over the past five days. This play on the strong bounce in U.S. consumer spending is getting ready to touch its 50-day moving average once again. Each time it has touched the 50-day moving average (or run slightly below), MasterCard has managed to make a new 52-week high shortly thereafter. The stock is a strong BUY.

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