Markets Oversold, a Time to Add to Your Positions?

Nicholas Vardy

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

Global stock markets pulled back over the past week, with the Dow Jones down 0.25%, the S&P 500 falling 0.98% and the NASDAQ tumbling 2.02%.The MCSI Emerging Markets Index also fell 1.21%.

Big gainers in your Alpha Investor Letter portfolio include Illumina Inc. (ILMN), which jumped 2.50%; PayPal Holdings (PYPL), which gained 2.02%; and Berkshire Hathaway (BRK-B), which gained 1.14%.

Berkshire Hathaway (BRK-B) also rose back above its 50-day moving average to return to a BUY.

The First Trust US IPO ETF (FPX), WisdomTree Japan Hedged Equity ETF (DXJ) and PureFunds ISE Cyber Security ETF (HACK) all fell below their 50-day moving average to become a HOLD.

As I scanned through each of your positions this morning, it struck me that almost every single one is technically oversold. That means that they have pulled back excessively and are due for a bounce.

Combine this fact with the strong December seasonality — and the Fed interest rate hike (hopefully) out of the way — and this week offers a terrific opportunity to add to your existing positions.

With 2016 almost upon us, predictions for the year ahead are starting to emerge.

In that vein, the latest issue of Barron’s caused a bit of a stir.

It turns out that for 2016, Wall Street strategists are expecting an average rise of 10% in the S&P 500. This 10% growth in the S&P is a bit above stocks’ historical growth rate. So the strategists’ latest estimate of a 10% gain in 2016 is not at all surprising.

But if you think 10% growth is optimistic, you are not alone. The predictions in Barron’s were widely derided.

Exclusive  Betting on the Bounce!

What would be surprising — and troubling — is if the strategists suddenly upped those expectations even more come January. Such behavior would suggest a bull market top rather than an emergence into one.

Given the current cautious market sentiment, I would be surprised if they did so. That may, however, change after a strong year-end rally.

While not the be-all-end-all of predictions, these type of “soft” sentiment indicators are worth keeping an eye on.

Portfolio Update

Berkshire Hathaway (BRK-B) gained 1.14% over the last five trading days. A.M. Best Co. recently assigned Berkshire Hathaway’s Direct Insurance unit a rating of “A++” — the highest financial strength grade rating for a subsidiary selling insurance directly to businesses over the Internet. The firm also gave an issuer credit rating of “aaa.” This new insurance unit will focus on workers’ compensation and business owners’ package policies. The outlook for both ratings was set at “Stable.” BRK-B just rose above the 50-day moving average (MA) to become a BUY.

Cambria Global Value ETF (GVAL) fell 1.28% last week. This exchange-traded fund (ETF) gives you surprisingly sophisticated exposure to a curated collection of the cheapest markets from around the world. Although trading slightly below the $18 price level, this position appears that to be making a solid floor at this support level. GVAL is a HOLD.

Guggenheim S&P 500 Equal Weight ETF (RSP) dipped 1.33%. S&P 500 equal-weighting works and historical performance data makes a solid case. When looking at rolling monthly periods, RSP bests the S&P 500 62% of the time over the past year, with an 82% win rate over the past three years. Looking over five years, RSP wins in 92% of rolling monthly periods. A 10-year historical look reveals that the win rate moves to 100%. RSP is a HOLD.

Exclusive  Prem Watsa’s Big Bet an Acquisition Candidate?

The Walt Disney Company (DIS) closed the week flat. “Star Wars: The Force Awakens” opens Friday. Based upon preliminary-showing reviews — ”We have a winner!” This is not only good news for Disney in the short term, but also for Disney’s future plans to release additional sequels and spin-offs. “Star Wars” could be a huge value-add to Disney’s bottom line for quite some time to come. DIS is a BUY.

Biotech ETF Market Vectors (BBH) also ended the week nearly perfectly flat with a gain of 0.01%. The biotech space added yet another week to its months-long sideways trading pattern. The underpinnings of the biotech sector remain strong, as do a preponderance of the major tickers that make up this longtime bull market. BBH is a BUY.

PureFunds ISE Cyber Security ETF (HACK) fell 3.33%. The tech sector is made up of five major segments including: The Internet of Things, Wearables, Big Data, 3D Printing and Cybersecurity. With HACK focusing on Cybersecurity, this segment is the essential function across all others. HACK is a HOLD.

Costco Wholesale Corporation (COST) gained 0.98% since being added to your portfolio. The top pick of Warren Buffett’s business partner Charlie Munger at Berkshire Hathaway, Costco is set to continue its consolidation of the U.S. retail sector. COST is a BUY.

Nicholas Vardy

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