An Unhappy New Year…

Nicholas Vardy

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

It was a lousy start to the year for U.S. stock markets, with the Dow Jones down 3.17%, the S&P 500 falling 2.97% and the NASDAQ tumbling 4.24%. Even the MCSI Emerging Markets Index bucked strong seasonal trends, dropping 4.33%.

You were stopped out of Cognizant Technology Solutions Corporation (CTSH) at a loss. I am keeping this position on the watch list for potential re-entry.

Many of your Alpha Investor Letter positions fell below their 50-day moving averages and moved to a HOLD. These include Markel Corp. (MKL), Google Inc. (GOOGL), First Trust US IPO ETF (FPX), PayPal Holdings (PYPL), KraneShares CSI China Internet ETF (KWEB), Market Vectors Biotech ETF (BBH), iShares Currency Hedged MSCI Germany (HEWG) and Costco Wholesale Corporation (COST).

Well, the much-anticipated Santa Claus rally has proven to be a bit of a dud. And with every position in your Alpha Investor Letter portfolio falling last week, the bullish January effect also seems to have taken a holiday. Monday’s sharp sell-off was an unpleasant wake-up call for the bulls, with the sharp sell-off in China triggering similar sell-offs abroad.

As we head into 2016, stocks are struggling, sentiment is souring and many macro indicators are pointing down. A pattern of lower highs and lower lows has emerged on the broad indexes. Most trend indicators have stalled at best and are pointing mildly lower in general.

Of course, it is always darkest before the dawn. Despite the sell-off, the S&P 500 has held above 2,000. Twice in the past three weeks, the index has dipped below that psychologically significant level only to bounce right back. And the general bearish mood could be taken as a contrarian indicator. With the market in correction, it is a stock picker’s market.

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Overall, the current market is not a recipe for heavy stock exposure. Market risk is too high right now and I would not be adding to positions.

Portfolio Update

Vanguard Russell 2000 Index ETF (VTWO) fell 4.30% over the holiday-shortened week. This point in both the calendar year and current economic cycle stands as a key one for a long-term rise in the small-cap sector. VTWO is also at a significant support level, tested twice since mid-August and again as far back as mid-October 2014. VTWO is below its 50-day moving average (MA) and is a HOLD.

AdvisorShares TrimTabs Float Shrink ETF (TTFS) gave back 3.16% last week. AdvisorShares announced a cash distribution last Wednesday for TTFS. Shareholders of record on December 29, 2015, received a cash distribution on December 31, 2015, in the amount of $0.41863 per share. TTFS is a HOLD.

WisdomTree Japan Hedged Equity ETF (DXJ) lost 3.45%. DXJ’s currency-hedged investment theme continues to be valid going into 2016 as Japan continues its monetary easing. The Bank of Japan (BOJ) is currently in the midst of one of its largest economic stimulus programs valued at 80 trillion yen. The Bank of Japan also surprised global markets back in mid-December with a plan to purchase even more of its own stock exchange’s exchange-traded funds (ETFs). DXJ is currently at a HOLD.

The Walt Disney Company (DIS) moved 5.77% lower. Despite the pullback in the stock, the success of its latest “Star Wars” film continues to push into all-time record territory — and this will be eventually reflected in Disney’s stock price. Disney acquired the “Star Wars” franchise from George Lucas for a “mere” $4 billion. Respected finance professor Aswath Damodaran recently unveiled that his calculations show a value of $10 billion for Disney. If the current film’s success is any gauge, that $6 billion in extra value will certainly boost Disney’s stock price. DIS is a HOLD.

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KraneShares CSI China Internet ETF (KWEB) dropped 4.89%. KWEB performed well in 2015 and has been a winner in your portfolio — on more than one occasion. Looking at last year’s Top 10 winning country-based ETFs, KWEB comes in at number seven with a 19.89% year-to-date gain. KWEB moved below its 50-day MA last week and is now a HOLD.

Guggenheim Spin-Off (CSD) moved 2.85% lower. 79 corporate spin-offs occurred last year, making 2015 one of the busiest years in quite some time. The total value of the spin-offs topped $244.9 billion — the highest amount experienced since 1995. CSD is a HOLD.

PureFunds ISE Cyber Security ETF (HACK) lost 4.20% last week. Andrew Chanin, the CEO of PureFunds, launched HACK last year and is bullish on cybersecurity — and for good reason. No matter what size company or industry type, every business needs good cybersecurity. Chanin also believes growth in this sector is in its early stages. HACK is a HOLD.

Costco Wholesale Corporation (COST) dipped 1.68% over the four-day holiday week. BMO Capital Markets released a research note last Thursday showing Costco’s prices were an average 26% lower than those of its rival It looks like Charlie Munger is not alone in his love for Costco. COST dipped just pennies below its 50-day moving average to become a HOLD.

Nicholas Vardy

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