The Global Bull Takes a Break as Markets Consolidate

Nicholas Vardy

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

With almost all technical indicators at “overbought” levels, this pullback was to be expected. That said, a handful of global markets — among them, your holdings in iShares MSCI Chile Investable Market Index (ECH) and iShares MSCI Hong Kong Index (EWH) actually rose over the week. That indicates that there the sell-off was not indiscriminate, and that global investors are still seeing plenty of opportunities in the markets.

We are now entering what has traditionally been the most quiet time in global markets. I am in two minds on the notion of the time-tested advice of “sell in May and go away.”

On the one hand, historically stocks do tend to underperform between May and September. On the other hand, this market reminds me of the last time global markets bottomed in the spring of 2003. Once they got going, global markets soared all the way through the summer and the rest of the year without any significant pullbacks. I am hopeful that 2009 will exhibit a similar pattern. And as you can see from the way your portfolio has developed over the past six weeks, I think the risks of being out of the market are as high as being in it.

Portfolio Update

The iShares MSCI BRIC Index ETF (BKF) dropped 4.9% last week as the “big four” markets: Brazil, Russia, India and China corrected after a strong run. Look for a big jump in BKF today as India soared over 17% within seconds of the market opening. A strong, positive result of the recent elections in India promised a new coalition, free of the pressures from its former communist partners, and boosted prospects of reforms in that country. BKF is a BUY.

The Market Vectors Double Short Euro ETN (DRR) rose back up to the $48 level for the first time in several weeks. Nevertheless, with the dollar weakening across the board over the past month or so, I am keeping your bet against the euro at a HOLD.

The iShares MSCI Chile Investable Market Index (ECH) bucked the trend in global markets this week, rising 2% and hitting $42 for the first time since September. With the uptrend fully intact, Chile remains a BUY.

The iShares MSCI Hong Kong Index (EWH) also rose about 2% last week. This bet on a Chinese-led recovery in Asia is a BUY.

The iShares MSCI Taiwan Index (EWT) dropped a little over 2% last week. With Taiwan pulling back while still above its 200-day moving average, this is a good time to add to your position. EWT remains a BUY.

Both the SPDR Gold Shares ETF (GLD) and the PowerShares DB Gold Double Long ETN (DGP) rose 2% and 4%, respectively, as risk aversion in markets increased. With gold hitting levels not seen since early April, both GLD and DGP remain a defensive BUY.

Your position in the iShares iBoxx $ High Yield Corporate Bond (HYG) dropped back this past week after a strong run. With this position yielding over 11%, HYG remains a BUY.

The iPath DJ AIG Copper TR Sub-Idx ETN (JJC) fell back this week. But with global economic recovery on the horizon, I am keeping “Dr. Copper” at a BUY.

Russia’s Mechel (MTL) lived up to its billing as a volatile stock, soaring 10% in the first two days in the portfolio before ending the week flat. The “cheapest stock in the cheapest market in the world” remains a BUY.

Your Rydex Inverse Government Long Bond Strategy Inverse (RYJUX) fell this past week. Yet, with long-term Treasury prices plunging by about 20% and causing yields to jump from 2.82% at the end of 2008 to around 4.10% currently, your bet against U.S. Treasuries remains a BUY.


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