A Volatile Week Leads to “Whipsawed” Positions

Nicholas Vardy

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

What a difference a day makes.” — Or as in the case of global markets recently, what a difference a week makes. The healthy gains your portfolio saw just one week ago have all but evaporated, thanks to a swift downturn in global market sentiment.

All major U.S. indices ended down again last week as the S&P 500 index extended its losing streak to five straight weeks. U.S. stocks, as a whole, closed down for the fifth-straight day yesterday, erasing gains made earlier in the day upon comments by Fed Chairman Ben Bernanke. Wall Street investors hoping for another round of credit easing did not get their wish. This caused significant selling of equities across the board.
Overall, it was a tough May for the markets. The S&P 500 index fell as much as 4% from its 52-week high before bouncing back during the last week to pare the month’s losses to 1.1%. The average domestic equity fund shed 1.3% during this period, holding up better than the 2.4% average decline in global stock funds.
Although several positions managed to stay above their respective 50-day moving averages to remain BUYs, such as iShares MSCI Malaysia Index (EWM), iShares MSCI Taiwan Index (EWT) and Market Vectors Indonesia ETF (IDX), the increase in market volatility over the past two weeks whipsawed several other portfolio positions. These include WisdomTree Japan SmallCap Dividend Fund (DFJ), iShares MSCI Singapore Index (EWS), iShares MSCI South Korea Index (EWY), Global X FTSE Nordic 30 ETF (GXF) and JinkoSolar Holding Co., Ltd. (JKS), all of which I’ve moved to HOLD.
Some notable bright spots are WisdomTree Dreyfus Chinese Yuan Fund (CYB), moving from a HOLD to a BUY, and the iShares MSCI Turkey Invest Mkt Index (TUR), which is forming a nice bottoming pattern. Although gold bullion did quite well this week, many gold mining companies included in Market Vectors Gold Miners ETF (GDX) sold off sharply, as this bet on gold miners ended the week down. None of your positions, however, hit their stops.
Market sentiment has turned distinctly negative. Data points toward a slowdown in the U.S. economic recovery. The U.S. Federal Reserve Bank’s $600 billion bond buying effort to spur spending and growth will end this month. Housing prices are still falling. Figures regarding jobs and manufacturing continue to disappoint, and the headline-grabbing U.S. unemployment rate rose to 9.1%. To add fuel to the fire, China has applied the brakes to its economy to rein in inflation. Taken all together, this is a bitter pill for investors to swallow.
Markets continue to be technically oversold. When the bounce comes, expect it to be sharp and swift.
Portfolio Update
Guggenheim Timber (CUT) dropped 6.57% over the past five trading days. A bright spot in the future of CUT may rest with International Paper (IP), the second-largest holding in CUT’s portfolio. Recent moves by IP to acquire a large competitor saw positive price movement for both companies. Combine this good news for CUT with its technically oversold position, and you have the makings for a good upward move. Still below its 50-day moving average, this position currently is a HOLD.
WisdomTree Dreyfus Chinese Yuan Fund (CYB) managed a 0.04% gain. This steady defensive play should continue to be a relative safe haven in a volatile environment. The 28% increase since 2005 in the yuan/dollar exchange rate works out to a gain of 4.5% per year. The continued devaluation of the U.S. dollar will only serve to support this trend. Closing one cent above its 50-day moving average, CYB is a BUY.
WisdomTree Japan SmallCap Dividend Fund (DFJ) ended the week exactly 1.00% lower. As Japan rebuilds, its nimble small cap sector should recover quickly. With a low correlation to U.S. equities and their ability to respond more quickly to market changes, Standard & Poor’s projects foreign small caps to outperform over the next two years. Closing below its 50-day moving average, DFJ is now a HOLD.
iShares MSCI Singapore Index (EWS) lost 1.90% during the last week. Closing just below its 50-day moving average, EWS is a HOLD.
iShares MSCI Malaysia Index (EWM) lost 0.46% for the week. Dipping only slightly over the difficult past week, EWM is poised for a further upward move. Now trading above its 50-day moving average, EWM is a BUY.
iShares MSCI South Korea Index (EWY) dropped 2.47% this week. Morgan Stanley is set to release results of its annual review of the South Korean economy — and it is likely to upgrade the entire market. This bodes well for the future prospects for this index. EWY has taken a slight dip and is now back to a HOLD.
iShares MSCI Taiwan Index (EWT) gained 0.25% over the previous five days. The positive behavior of this index’s price level is promising, given the current negative market sentiment. This position remains a BUY.
Market Vectors Gold Miners ETF (GDX) dropped 5.98%. Although the actual price of gold rose over the previous week, your GDX position fell. Recall that GDX is a portfolio of gold mining companies rather than a proxy for the actual price of bullion. And like most stocks, gold miners were no exception to the sell-off. Gold is still a safe bet in this uncertain market, and it remains a core holding in your portfolio. Trading below its 50-day moving average, GDX is remains a HOLD.
Global X FTSE Nordic 30 ETF (GXF) ended the week 2.42% lower. GXF’s significant exposure to the booming Swedish economy is a solid catalyst for growth on Europe’s periphery. For now, GXF is below its 50-day moving average and is back to a HOLD.
Market Vectors Indonesia ETF (IDX) only fell 0.57% this past week, holding up in the face of negative global investor sentiment. Indonesia ranked second in a 2008 United Nations list of top cocoa bean producers. The explosion of global demand for cocoa, as well as other agricultural commodities, bodes well for Indonesia’s future economic success. IDX is still a BUY.
JinkoSolar Holding Co., Ltd. (JKS) took a hit over the previous week, losing 10.76%. JKS is now trading near the $22 level, a price JKS has bounced off twice before in the past three months. The test of this support level may yield an important clue towards future JKS price movement. This holding’s recent swift downward shift moves JKS to a HOLD.
Las Vegas Sands Corp. (LVS) decreased 2.91% over the past week. Over 75% of the analysts rank LVS as a “Buy.” Analysis of recent Bloomberg data suggests that this stock may be ripe for a 25% gain over the next year. LVS remains a HOLD while it trades below its 50-day moving average.
iShares MSCI Turkey Invest Mkt Index (TUR) ignored the recent tumble in global markets and rose 1.77%. TUR continues its upward move away from a close brush with its stop price. Turkey is currently experiencing falling inflation, is home to the sixth-best-performing stock market in the world, and boasts a resilient banking system that has weathered the global slowdown well. The future is bright for this rising economic star. Trading below its 50-day moving average, TUR remains a HOLD.

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