Betting on the Irish Boom

Nicholas Vardy

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

U.S. stock markets closed 2015 on a down note, with the Dow Jones down 0.72%, the S&P 500 pulling back 0.83% and NASDAQ falling 0.81%. The MCSI Emerging Markets Index also tumbled 2.45%.

Among your current holdings, Signature Bank (SBNY) fell below its 50-day moving average and moved to a HOLD.

Scanning the headlines this morning, you’ll see that 2016 is hardly off to a great start. Instead of the usually optimistic headlines that dominate this time of the year, the mood is rather dour. Markets in Asia sold off sharply overnight, with China down 7%. European markets also are down this morning at the open. U.S. futures are signaling a weak start to 2016.

This week’s Bull Market Alert recommendation, iShares MSCI Ireland Capped ETF (EIRL), takes you to the one stock market in the world where economists and, yes, maybe even investors, are optimistic.

After half a decade of economic austerity — and much to the chagrin and embarrassment of Paul Krugman and other anti-austerity economists — the Irish economy has not only turned around, but is going gangbusters. With the economy growing just under 6% in 2015 and Ireland’s debt-to-GDP (gross domestic product) ratio plummeting much quicker than expected, Krugman and his acolytes are arguing with success. I’ve written about this before, and even the Irish press picked up on my criticisms in November.

Ireland was the second-best-performing stock market in the world in 2015, with EIRL recording a 20.81% gain. In fact, EIRL has produced an annual average gain of 20.63% over the past three years and 17.53% over the past five years, outpacing virtually every international ETF in those periods. The contrast with Greece, which embraced more the “kick the can down the road” philosophy, couldn’t be more clear. The Global X FTSE Greece 20 ETF (GREK) fell 39.71% in 2015.

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Here’s why I think Ireland’s success will continue into 2016.

First, the good news about the Irish economy keeps on coming. Ireland’s economy grew by 7% in the third quarter of 2015 and unemployment is expected to fall to 7% by the year’s end.

Second, the weak euro and Ireland’s export orientation should help keep the growth story going into 2016. Tracking the MSCI All Ireland Capped Index, EIRL provides exposure to a basket of 25 Irish stocks and is heavily concentrated in firms like CRH Plc, Kerry Group and Bank of Ireland — all benefiting directly from the Irish boom. EIRL also has big stakes in budget airliner Ryanair (RYAAY) and outsourced drug developer Icon (ICLR).

Technically, EIRL has broken out of the narrow trading range that has characterized most markets and stocks since September. In fact, EIRL recently hit a seven-year high, and it is currently overbought.

In the current market environment, I am recommending that you hold off on entering this position. Specifically, I expect to be recommending that you buy EIRL once it returns to the bottom end of its previous trading channel — that is, around the $38.50 level. But for now, put iShares MSCI Ireland Capped (EIRL) on your watch list.

Portfolio Update

Alaska Air (ALK) lost 1.96% over the previous four-day holiday week. Oppenheimer sees strength in the airline sector for the first-half 2016. Calling 2015’s weak performance a “consolidation year,” Oppenheimer is optimistic about a recent break above what it called “decade-long resistance” and is looking for a long-term turnaround. ALK is a BUY.

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Manhattan Associates, Inc. (MANH) fell 4.50%. Manhattan Associates recently announced that it won the 2015 China Logistics “Well-known Brand” award — for the second year in a row. This award highlights MANH’s strong brand and the excellent solutions it employs to assist its customers logistically. MANH is a HOLD.

Signature Bank (SBNY) closed the week nearly flat, dipping just 0.16%. Despite this extremely minor fall last week, SBNY still moved below its 50-day moving average (MA) and changed to a HOLD.

Direxion Daily Small Cap Bull 3X Shares (TNA) lost 5.05%. TNA spent much of the short week trading sideways, only to take a tumble on the final day of 2015. However, you were able to sell your option position on TNA’s sister symbol, IWM, and lock in nearly a 40% gain. The time and conditions are right for small caps, and TNA’s 3x personality is just the ticket to capture maximum gains on this trend. TNA is a BUY.

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Nicholas Vardy

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