A One-Month Roller Coaster Ride

Nicholas Vardy

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

Global financial markets have been on a roller coaster ride lately. Thankfully, what goes down must also come up. And the final leg of that roundtrip treated investors to a stunning turnaround and a big boost to the Alpha Investor Letter portfolio. With the recent rally erasing nearly all of the losses incurred over the past month, had you taken a vacation over the previous month, you might not have even noticed that a pullback had even occurred.

U.S. markets had a very strong week last week. The tech-heavy NASDAQ Composite leapt 5.11%, while the S&P 500 Index and the Dow Jones Industrial Average added 4.51% and 4.37%, respectively. After bouncing handily off of its 200-day moving average, the S&P 500 soared back nearly to its previous resistance level. In fact, last week was one of the 29 strongest weeks in the history of the S&P 500 since 1950.

All of your Alpha Investor Letter positions jumped significantly this past week, with most of your holdings moving back to BUYs. Las Vegas Sands Corp. (LVS) soared a whopping 9.73%. iShares MSCI South Korea Index (EWY) gained 7.77%. JinkoSolar Holding Co., Ltd. (JKS) rose an additional 6.17%. Your plays on Malaysia and Indonesia both also hit record highs. In addition, several picks on our “Watch List” are now moving back in the portfolio as BUYs. These include Market Vectors Russia ETF (RSX), Vale S.A. (VALE), Freeport-McMoRan Copper & Gold Inc. (FCX) and UltraShort Lehman 20+ (TBT).

The recent market action highlights the power of the 200-day moving average. You need only to look at a recent daily chart of the S&P 500, with the 200-day moving average super-imposed, to see the importance of this indicator. While the 50-day moving average is a good rule of thumb on short-term “Buy” versus “Hold” recommendations, the 200-day moving average confirms the long-term trends. You’d be well advised to heed its message.

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With the close of the first six months of the year, there are reasons to be optimistic. After all, the S&P 500 has not had a down year in the third year of a first-term U.S. presidency since 1950. In fact, the average annual return in the third year of a first-term presidency has been a stunning 21.34%. Even under Jimmy Carter, the S&P 500 rose 11%. Perhaps surprisingly, you see this effect in global markets, as well.

Yet, even with the market uptrend back in place, I remain cautious. Sustainable trends have been rare this year. The Greek debt problem has not gone away, and the U.S. government still needs to agree on an increase to its debt ceiling. Even news of a debt-rating downgrade for Portugal was enough to cause the recent rally to pause. This is all good evidence that fear is far from easing. In my view, the biggest challenge is yet to come as the economic growth story in China begins to unravel, and the full extent of its debt-fueled binge becomes apparent.

Portfolio Update

WisdomTree Dreyfus Chinese Yuan Fund (CYB) made a nice comeback and moved up 0.28% over the past week. China will likely continue to raise the value of its currency in its ongoing battle to fight inflation. Currently below its 50-day moving average, CYB is a HOLD.

WisdomTree Japan SmallCap Dividend Fund (DFJ) ended the week with a gain of 3.99%. With many broad-based Japanese ETFs trending upwards since the big earthquake, Japan is certainly beginning its comeback. With the Nikkei average nearly done testing its current support level, DFJ is a safe bet. Above its 50-day moving average, DFJ is a BUY.

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iShares MSCI Singapore Index (EWS) rose 4.2% over the previous week. Singapore is contributing significantly to the shortage of offshore drilling rigs as it ramps up its oil and gas exploration efforts. Slightly below its 50-day moving average, EWS is currently a HOLD.

iShares MSCI Malaysia Index (EWM) rose 3.64% for the week and hit a record high. Tom Aspray, one of my MoneyShow colleagues, recently performed an in-depth chart analysis on the EWM ETF and found several technical reasons to support the continued strength of this ETF. Now trading comfortably above its 50-day moving average, EWM is a BUY.

iShares MSCI South Korea Index (EWY) gained 7.77%. The Harvard Endowment’s first quarter 2011 “13F filing” suggests that the endowment is increasing its weighting in EWY. Based upon its 50-day moving average, EWY is now a BUY.

iShares MSCI Taiwan Index (EWT) increased by 3.74% over the previous week. Even with the news of a recent surprise interest rate hike, Taiwan shows an annual growth rate of 6.8% for the past 12 years. This strong technology innovator may be down, but it is not out. Resting slightly under its 50-day moving average, EWT remains a HOLD.

Market Vectors Indonesia ETF (IDX) rose 4.54%. Recent data regarding Indonesia’s inflation implies that interest rate increases may not be necessary. This is bullish for the Indonesian economy. IDX is still a BUY.

JinkoSolar Holding Co., Ltd. (JKS) had another stellar week, packing on an additional 6.17%. A recent research report by Equity Markets confirms that there are bright days ahead for solar and JKS. JKS is above its 50-day moving average and is a BUY.

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Las Vegas Sands Corp. (LVS) posted another whopping 9.73% increase. This “cheap” stock is now playing catch-up to its other major Macau competitors Wynn Resorts and Melco Crown. LVS sliced through its 50-day moving average and is now a BUY.

Market Vectors Russia ETF (RSX) is off the "Watch List" and is back in the Alpha Investor Letter’s portfolio. Russia is the best of the BRICs, as China, India, and Brazil are all down this year. RSX tries to replicate the DAX global Russia+ Index, and normally invests at least 80% of its total assets in securities that comprise the index. RSX is currently a BUY. Place your stop at $35.50.

Vale S.A. (VALE) rose enough in the past week to warrant adding it back to the portfolio. With commodities bouncing back and the Brazilian currency, the real, at record highs against the U.S. dollar (USD), this producer of basic metals is shining once again. Well above its 50-day moving average, VALE is a BUY. Place your stop at $29.00.

Freeport-McMoRan Copper & Gold Inc. (FCX) will likely be a profitable play over the coming weeks. Copper prices are on the rise once again largely due to an increase in demand from China. FCX is a BUY. Place your stop at $45.50.

ProShares UltraShort Lehman 20+ (TBT) bets that the end of the U.S. government’s most recent Quantitative Easing (QE2) program may be a strong signal that the time for a short position in U.S. treasuries is ripe. This 2x play on a fall in U.S. treasuries is now a BUY. Place your stop at $31.80.

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