Profiting from a Short-Term Bounce

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
Last week was by far the worst week of the year for markets in 2012. The Dow Jones Industrial Average was down 3.52%, the S&P 500 dropped 4.30%, and the NASDAQ plummeted 5.28%. Emerging markets fared even worse, tumbling 6.71%. Not even the hoopla surrounding the Facebook initial public offering (IPO) could change the market’s mood. I was standing in Times Square in New York at the Nasdaq market site on Friday during Facebook’s listing. And I can tell you, there were plenty of disappointed investors among the crowd as the price of the world’s most-hyped IPO had a tough time staying above its offering price.
 
The current correction has been dramatic and very, very unusual. Over the past 15 trading days, the Dow has declined 13 times. And on the two days that it managed to squeak out a gain, it was no more than +0.5%. That’s remarkably weak. According to sentimentrader.com, we haven’t witnessed such a consistent sell-off in nearly 40 years. In addition, volatility in the market skyrocketed with the VIX (“the fear index”) soaring over 50% in May alone. Meanwhile, the much-reviled U.S. Treasury Bond hit an all-time high as investors paid up for relative safety.
 
Your Bull Market Alert portfolio suffered, as well. You were stopped out of Intuitive Surgical, Inc. (ISRG), Dick’s Sporting Goods Inc. (DKS), Digital Realty Trust Inc. (DLR) and even the world’s top-performing stock market for 2012, Colombia, through the Global X FTSE Colombia 20 ETF (GXG). Your position in Novo Nordisk (NVO) also moved to a HOLD.
 
This is a real shame, as the share-price drops were not due to the changing fundamentals. Investors simply threw the baby out with the bathwater on the back of fear of a run on banks in Europe.
 
That all said, the market can’t keep going down forever. And by the technical measures I look at, the market is as oversold as it has been in recent memory.
 
 
So, as tough as it may be, I am going to call a bounce in the U.S. markets this week. And the best way to profit from that is through the ProShares Ultra S&P500 (SSO) — a 2x leveraged bet on the S&P 500. Even if the S&P 500 only bounces back to its previous resistance level of around 1,350 — a 4.2% jump compared to Friday’s close, this position should gain roughly twice that or well over 8%. Set a stop price of $42.50 for SSO.
 
For potentially bigger gains, buy the June $50 call options (SSO120616C00050000).
 
Again, this is a very short-term bet, so keep an eye out for any special alerts during the week recommending that you close the position.
 

Portfolio Update

Bank of Ireland (IRE) lost 11.05% last week. The Irish government announced further restructuring plans for the two remaining banks, Allied Irish Banks PLC and Bank of Ireland. Both banks have domestic loan books worth over 60 billion euro, hold the top market-share spots, and have the largest branch networks. Your position in IRE shall rise again in time. IRE is a HOLD.
 
National Bank of Greece SA (NBG) fell 21.87% over the past five trading days. Fitch downgraded a basket of major Greek banks last week, hurting NBG’s share price. Although tensions are running high on Greece’s ability to make good on austerity plans, European Union Vice President Olli Rehn recently stated that the commission is not preparing for a Greek euro zone exit. NBG is a HOLD.
 
Monster Beverage Corp. (MNST) gave back 4.12% last week. MNST held tough at the beginning of the week on the afterglow from its recent stellar earnings report. However, Monster finally succumbed to wider market pressures late in the week, dipping slightly. I expect MNST to be a leader once the broader markets get back on their feet. MNST is a BUY.
 
Novo Nordisk A/S (NVO) fell 3.03% over the previous week. NVO is making money faster than it can put product on the shelves — a very good sign for a corporation’s future prospects. Couple this with a five-year projected earnings per share growth rate of 15.33%, and the future becomes even rosier. NVO is a HOLD.
 
3D Systems Corp. (DDD) gave back 6.38% last week. The broad market sell-off has left even the strongest of stocks reeling from the whirlwind, and DDD is no exception. However, 3D Systems Corp has been above the 50-day moving average every day since the first week of 2012. DDD did touch the 50-day moving average once in mid-April, but took a steep bounce that began the next day. DDD is directly above the 50-day moving average and has a good chance of holding the line. DDD is a BUY.
 

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This week, I attended The Money Show in Las Vegas, met with many of you during my presentations and fielded a number of well-thought-out questions. While there was some talk of Facebook's initial public offering, a sense of caution about the near-term direction of the stock market was in the air as many of you, as well as me, are concerned with the number of uncertainties around the globe. These concerns were fueled early this week by Greek depositors withdrawing €700 million ($898 million) fr

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