A Reprise of the 2011 Sell-Off?

Nicholas Vardy

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

Markets closed a positive week, with the Dow Jones up 0.79%, the S&P 500 rising 1.35% and the NASDAQ jumping 1.76%. The MCSI Emerging Markets Index closed 2.22% higher.

Big gainers in your Alpha Investor Letter portfolio included PayPal Holdings, Inc. (PYPL), which gained 4.97%; Markel Corp. (MKL), which jumped 4.85%; and The Walt Disney Company (DIS), which rose 3.05%.

In a sign of a market that has settled, a significant number of positions moved back above the 50-day moving average last week and flipped back to Buys. These include Berkshire Hathaway (BRK-B), Vanguard Russell 2000 Index ETF (VTWO), Markel Corp. (MKL), AdvisorShares TrimTabs Float Shrink ETF (TTFS), First Trust US IPO ETF (FPX), WisdomTree Japan Hedged Equity ETF (DXJ) and PayPal Holdings (PYPL).

It has been quite a reversal. The blame for the global market sell-off this summer was placed firmly at the foot of China when CNN’s Fear and Greed index was flashing “extreme fear” for weeks on end. But China’s Shanghai Composite has soared 12% so far in October after a dramatic 34% plunge between June and September.

Nor is China alone. The S&P 500 has surged nearly 6% so far this month. Japan’s Nikkei has gained more than 4%. Germany’s DAX is up 5%.

The one area of sector weakness continues to be biotechnology, which can’t seem to shake off the Hillary Clinton-related pricing regulation blues.

Otherwise, things are unfolding pretty much as I expected — and pretty much on schedule.

I continue to argue that 2015 has been more like 2011 than 2008. Here’s some visual evidence offered by Bespoke Premium — a chart on the S&P 500’s track record so far this year compared with the whole of 2011.

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Note how the index went sideways for the first seven months of 2011 until things fell apart in August.


2015 won’t be a great year. But I expect it to end on a positive note after this summer’s sharp sell-off.

Now if we could just get those biotech stocks out of their funk.

Portfolio Update

Berkshire Hathaway (BRK-B) rose 1.49% last week. Warren Buffett refers to the ratio of total market cap to U.S. growth domestic product (GDP) as “probably the best single measure of where valuations stand at any given moment.” As of now, U.S. stocks stand at 118% of GDP. This includes the recent correction that pushed this metric down from the 2015 high of 125% and quite safely below the 148% of the 1990 market bubble. Berkshire Hathaway is expected to announce earnings on Nov. 6. BRK-B moved above the 50-day moving average (MA) to become a BUY.

Vanguard Russell 2000 Index ETF (VTWO) added 1.35%. VTWO has been below its 50-day MA since the markets began their summer correction in late July. As of last week, VTWO is back above the 50-day MA and back to a BUY.

Markel Corp. (MKL) jumped 4.85% over the last five trading days. ‘Tis the season for earnings reports once again, and MKL will report earnings on Nov. 4 after markets close. MKL last issued earnings on Aug. 5, reporting $6.32 earnings per share (EPS) and beating the consensus EPS estimate of $6.28 by $0.04. MKL also moved above the 50-day MA to become a BUY.

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Google Inc. (GOOGL) closed out last week flat. GOOGL has been on the rise over the past three weeks. GOOGL took a huge jump after its July 16 earnings announcement and moved up to the $700-per-share price level. Although GOOGL felt the pain of the recent market pullback, this stock closed back at $700 per share just last Monday — essentially erasing any trace of the recent pullback. GOOGL will announce earnings results on Oct. 22 (tomorrow) after markets close. GOOGL is a BUY.

First Trust US IPO ETF (FPX) gained 1.92%. FPX is a play on the power of initial public offerings (IPOs). Certainly the biggest IPO news as of late is the Ferrari IPO, which opens today at an expected price of $52 per share. Although many folks can’t afford an actual Ferrari, owning a piece of the company may just be the next best thing. FPX moved to a BUY last week.

The Walt Disney Company (DIS) rose 3.05% to close its third consecutive week of gains. DIS will report earnings on Nov. 5 after markets close. According to Zacks Investment Research, the consensus EPS estimate is $1.16. DIS reported $0.89 EPS in the same quarter last year. More than half of the analysts making recommendations on DIS rank the stock as a “Strong Buy.” DIS is a BUY.

PayPal Holdings (PYPL) gained 4.97%. Deutsche Bank reiterated its “Buy” rating for PayPal on Monday and raised its price target from $42 to $44. Deutsche Bank is also projected to report strong earnings results next week. PYPL will report earnings on Oct. 28, after markets close. PYPL recently rose above its 50-day MA to become a BUY.

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Freeport-McMoRan Copper & Gold Inc. (FCX) fell 6.28% in its first week in the portfolio. This bet on the shine returning to copper lets you invest alongside Carl Icahn and benefit from any “arm twisting” he may use to help prices rise. FCX will report earnings on Oct. 22 before markets open. FCX is a BUY.

KraneShares CSI China Internet ETF (KWEB) dipped 0.80% after rejoining the Alpha Investor Letter portfolio last week. KWEB has been on the rise as of late after putting in a convincing bottom at the $29 price level over the month of September. KWEB is a BUY.

Vanguard Global ex-US Real Estate ETF (VNQI) closed the week nearly flat, dipping just 0.60% for its opening week in your portfolio. VNQI gives you access to investing in global real estate through the power and diversification of an exchange-traded fund (ETF). VNQI moved above its 50-day MA at the beginning of October on strength and has been on the rise ever since. VNQI is a BUY.

Nicholas Vardy

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