Markets Settle, Poised for Recovery?

Nicholas Vardy

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

Global stock markets recorded yet another positive week, with the Dow Jones up 0.94%, the S&P 500 rising 1.19% and NASDAQ gaining 2.03%. The MCSI Emerging Markets Index also recovered 1.28%.

Big gainers in your Alpha Investor Letter portfolio included Apple Inc. (AAPL), jumping 3.45%; the iShares Currency Hedged MSCI Germany (HEWG), gaining 2.71%; First Trust US IPO ETF (FPX), rising 2.59%; AdvisorShares TrimTabs Float Shrink ETF (TTFS), climbing 2.52%; The Walt Disney Company (DIS), adding 2.45%; Guggenheim Spin-Off (CSD), rising 2.44%; and the Vanguard Russell 2000 Index ETF (VTWO), adding 2.39%.

With markets up for the second week in a row, the general market panic of the first two weeks of January appears to be subsiding.

First, negative market sentiment as measured by the CNN Fear and Greed Index still stands at “extreme fear,” but it appears to have bottomed.

Second, data confirm short-term traders are now betting on a fall in the VIX or the “fear” indicator. That suggests that they expect the market panic to continue to subside.

Third, in terms of market action, Tuesday marked the second day out of the past three days that more than 80% of stocks on the NYSE advanced, and more than 80% of the volume flowed into those advancing stocks. Such concentrated buying pressure has been almost universally bullish.

Finally, I’m sure many of you, like my clients, have been wondering whether you should reduce your exposure to the stock market or exit it altogether.

While there are no guarantees in the market, history tells us that would be a bad idea. Investors are notoriously bad at timing the market. And the chart below from Ritholz Wealth Management shows the surprising impact of being out of the market just 25 of the best days in the market since 1970. That’s 25 days out of roughly 11,500 trading days.

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The bottom line?

Stick with stocks and stick with your stops. You’ll be glad you did.

Portfolio Update

Vanguard Russell 2000 Index ETF (VTWO) added 2.39%. Historically, small-cap stocks tend to outperform at this time of the year. But this has not been the case for the start of 2016. The worries about China and the relentless decline in the price of oil have overwhelmed this otherwise positive tendency. Fortunately, VTWO pays a 1.23% dividend (as of December 31, 2015) while we wait for small caps to move higher. VTWO is a HOLD.

Markel Corp. (MKL) dipped 1.37% over the previous week of trading. Markel’s stock continued another week of trading sideways along its 200-day moving average (MA). This is the third week of this pattern, suggesting that MKL may be consolidating support for a future move higher. MKL will announce earnings on Feb. 10 after markets close. MKL is a HOLD.

Google Inc. (GOOGL) rose 2.05%. Tom Wheeler, chairman of the Federal Communications Commission (FCC), may propose rule changes against television set-top boxes, helping providers of Internet-based programming. Cable and satellite customers would gain more choice over their service provider’s set-top box, giving more access to services delivered through new technologies such as Google’s Android TV. Estimates peg consumer over-payments at between $6 billion and $14 billion a year for add-ons such as cable-box rental fees. GOOGL will report earnings on Feb. 1 after markets close. GOOGL is a HOLD.

The Walt Disney Company (DIS) moved 2.45% higher last week. In addition to the general downward trend of markets, Disney’s stock has suffered lately over concerns regarding ESPN subscriber weakness. According to recent analysis from JPMorgan, the ESPN subscriber “issue is exaggerated.” JPMorgan also believes that Disney shares are “extremely attractive” at current price levels. DIS will report earnings on Feb. 9 after markets close. DIS is a HOLD.

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PayPal Holdings (PYPL) dipped 0.71%. PayPal will report earnings today. Several investment analysis firms have upgraded PayPal shares in recent days, and expectations are generally positive. Pacific Crest believes PYPL’s consensus 2016 earnings per share estimates will rise after quarterly earnings results have been fully digested by market players. PYPL is a HOLD.

Illumina Inc. (ILMN) moved 1.96% higher. Illumina will report earnings on Feb. 2 after markets close. ILMN has been trading up against its 50-day MA for three weeks, breaking above this line intraday on Monday. A positive earnings report will very likely push ILMN higher, and to a “Buy.” ILMN is a HOLD for now.

Apple Inc. (AAPL) jumped 3.45% last week and reported earnings yesterday. AAPL reported first-quarter earnings per share of $3.28, $0.05 above consensus estimates. Revenue came in at $75.87 billion, below the $76.59 billion estimate. AAPL remains a BUY.

Join me at The MoneyShow in Orlando, March 2-5!

Receive free admission to the MoneyShow in Orlando, Florida, as a guest of Eagle Financial Publications and me. The show’s new venue is at Disney’s Contemporary Resort near the company’s famous theme parks. I especially encourage you to attend my presentations, as well as those of my colleagues Bryan Perry and Dr. Mark Skousen, among more than 150 other speakers who will address a range of income and growth investments. Register today.

Nicholas Vardy

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