Stocks started off the week with a bang Monday, making back some of the prior week’s heavy losses as the European Union announced a $1-trillion rescue package for the euro. The Nasdaq soared 4.8%, the S&P 500 rose 4.4% and the Dow climbed 3.9%. Those were the major indices’ best one-day gains since March 2009. By Tuesday, stocks had steadied across the board. Volatility was still out in full force and safe-haven assets like gold hit record highs.
Your bet against the euro through the UltraShort Euro ProShares (EUO) hit a record high of $23.64 last Thursday. It dropped slightly on the announcement of the rescue package on Monday. But by Tuesday, it closed near its record level at $23.46. This confirms that the markets are skeptical that the “shock-and-awe” bailout package has solved Europe’s long-term problems. At the best, it is a harbinger of fiscal retrenchment and slower economic growth. At worst, it is throwing good money after bad. The euro’s trend is still firmly down and EUO remains a BUY.
Many of the Global Stock Investor positions that you had stopped out of on Thursday’s historic market swoon — and are now on our watch list — bounced sharply in the past two days. This month’s pick — the iShares MSCI Malaysia Index (EWM) — already has benefited from this short-term bounce and is up 4.6% from your buy price Thursday.
Despite the widespread uncertainty in the market, the fundamentals of your positions on the watch list haven’t changed. I continue to be particularly bullish on positions that have held up relatively well — in particular, the iShares MSCI South Korea Index Fund (EWY), Market Vectors Indonesia ETF (IDX) and iShares MSCI Israel Cap Invest Mkt Index (EIS). Remember, it was only a couple of weeks ago that these were trading near all-time highs.
Re-entry strategies are among the most tricky in investing. So let me reveal my rule of thumb. As the positions on your watch list penetrate their 20-day moving averages, I will begin to recommend that you gradually re-enter your positions. This will indicate that markets have settled somewhat. But as of today, none of the positions on your watch list meets this condition. So it is still best to keep your horns in.
Portfolio Update
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) also dropped on the global sell-off. That was more a sign of investors dumping assets than a change in the fundamentals of the Chinese currency. CYB remains a BUY.
iShares MSCI Malaysia Index (EWM) bounced 4.6% in the first couple of days in the portfolio. Malaysia’s economy probably grew the most last quarter since at least 2000. Goldman Sachs says the impact of Europe’s sovereign debt crisis will be muted on Malaysia, and recommended that investors buy the Malaysian currency, the ringgit. EWM is a BUY.
UltraShort Euro ProShares (EUO) fell back from its record high of $23.64 last week. But skepticism surrounding the $1-trillion bailout package and Europe’s long-term structural problems mean that your bet against the euro remains a BUY.
P.S. If you want to keep up with my latest insights on developments in fast-paced global markets, you can now follow me on Twitter on @NickVardy or on my new blog, NickVardy.com.
