Taking a Step Back from the Plate

Nicholas Vardy

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

Your Global Bull Market Alert portfolio did much better.

Russia’s Mechel (MTL) soared an eye-popping 19.16% last week, indicating that risk appetite returned to the market. Raise your stop to $19.30.

Your bet against the euro through the UltraShort Euro ProShares (EUO) also rose slightly this past week, as the European Union continues to struggle with addressing Greece’s fiscal woes.

It’s worth noting that your bet against the euro has been one of the few in the world that has performed well during the recent sell-off in the markets.

Compare its performance to, say, the broad-based MSCI Emerging Markets Index.

Overall, EUO is up 11.3% since our initial recommendation. The May $20 call options are up 68.75%. Hold on to both for now. That said, if the situation concerning Greece stabilizes, I will likely recommend that you close this position. But for now, the trend is still down. Raise your stop to $19.50.

With the MSCI emerging markets index appearing to have bounced off its 200-day moving average for the first time since late April, there is a possibility that global markets have already successfully tested their lows. Copper, the “metal with the PhD in economics,” also bounced sharply last week, just before hitting its 200-day moving average.

Technically, global markets are oversold. And, markets tend to bounce strongly after such sharp sell-offs. That said, the iShares MSCI Emerging Markets Index (EEM) topped the list for “selling on strength” last week, a measure that tracks stocks that rose in price but had the largest outflow of money. This indicates that many investors are using the recent bounce to reduce or exit their positions.

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I could make an equally strong case for betting on a bounce in the market as I could for using the recent bounce back as an opportunity to short either emerging markets or copper. At times like this, it is best to step back from the plate, and wait for the market to show us its future direction. I have over 70% cash in my managed accounts at my investment firm as well, and right now I see no compelling reason to reduce that cash level, with either strong bullish or bearish bets. Once the market does show a direction, I’ll be ready, armed with a palette of potentially profitable picks, no matter what direction the market heads.

Portfolio Update

UltraShort Euro ProShares (EUO) stayed above the $20 mark, rising slightly at the end of the week. With this bet against the euro closely linked to the risk associated with Greece’s fiscal problems, I am keeping this position at a BUY. Raise your stop to $19.50.

Mechel (MTL) soared almost 20% this past week from its lows, on the back of increased risk appetite in global stock markets. With this barometer of global risk now back above its 50-day moving average, I am keeping this volatile pick as a speculative BUY. Raise your stop to $19.30.

iPath DJ AIG Sugar TR Sub-Idx ETN (SGG) rose about 1% this past week. The fundamentals behind sugar’s rise remain positive, as supply remains tight and the demand for sugar from both developed and emerging economies is rising unabated. SGG remains a BUY.

P.S. If you want to keep up with my latest insights on developments in fast-paced global markets, you can now follow me on Twitter on @NickVardy.

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It was yet another tough week for global markets, as both developed and emerging stock markets sold off sharply and across the board.


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