Is this Bounce for Real?

Nicholas Vardy

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

The past week’s positive market moves are in stark contrast to what we have lived with for the past month and a half. The recent textbook “bounce” of the S&P 500 index ($SPX) off of its 200-day moving average is a significant event and begs the question, “Is this bounce for real?”

In addition to the S&P 500 bounce off of this crucial moving average, the market enjoyed its first four-day rally this month. Add the fact that Tuesday was the best one-day gain for stocks in three months, and Bulls could get quite excited, proclaiming that this is the birth of the next leg up. Bears will disagree. One thing’s for certain: the market is more oversold now than it has been since last August and is due for a bounce.

Most of the positions in your Alpha Investor Letter portfolio ended the week flat. But several of your positions hit their stop prices, including the Guggenheim Timber (CUT), Market Vectors Gold Miners ETF (GDX), Global X FTSE Nordic 30 ETF (GXF), and iShares MSCI Turkey Invest Mkt Index (TUR). I have placed all of these positions on the watch list.

The majority of your remaining positions are now on HOLD. Only the WisdomTree Japan SmallCap Dividend Fund (DFJ), iShares MSCI Malaysia Index (EWM) and iShares MSCI Taiwan Index (EWT) have BUY recommendations based on their respective 50-day moving averages.

The big news story dominating the media and worrying global markets is the ongoing economic crisis in Greece. The Greek government finally caught a break Tuesday night and won a crucial vote of confidence, paving the way for passing some much-needed austerity measures into law. As a result, Greece will receive an immediate infusion of cash that will tide it over until September 2011. However, in the grand scheme of things, Europe is just kicking the can down the road and Greece still faces significant obstacles. A much larger bailout package will be necessary to insure the Greek government’s survival through next year.

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Caution is the name of the game at this point. The recent bounce is not yet enough to allow us to get back into the market safely at this time. I am looking for stronger confirmation of a trend before I recommend any bullish moves.

Portfolio Update

WisdomTree Dreyfus Chinese Yuan Fund (CYB) rose a respectable 0.43%. CYB continues to gain traction as a “flight to safety” investment. CYB should enjoy gains as investors seek further refuge in an uncertain market climate. Currently below its 50-day moving average, CYB is a HOLD.

WisdomTree Japan SmallCap Dividend Fund (DFJ) ended the week a mere 0.21% lower. DFJ is still trading nearly $4.50/share below its pre-earthquake price level. This gives DFJ a lot of room for upside potential. Closing just above its 50-day moving average, DFJ is a BUY.

iShares MSCI Singapore Index (EWS) lost only 0.37% during the previous week. The strong upward move back to its 200-day moving average is a positive sign. EWS enjoyed a meteoric 45-day rise the last time it breeched its 200-day moving average, but then reversed sharply. Currently below its 50-day moving average, EWS remains a HOLD.

iShares MSCI Malaysia Index (EWM) gained 1.40% for the week. While the DOW and S&P 500 averages have taken a beating since May 1, EWM is currently back to levels it last saw in early May. EWM is proving to be a pillar of strength in a crumbling market environment. Now trading above its 50-day moving average, EWM is a BUY.

iShares MSCI South Korea Index (EWY) lost 1.25% this week. Morgan Stanley released its Emerging Market region classifications today. South Korea and Taiwan both retained their “Developing Markets” status. Based upon this news, major funds that track South Korean (and Taiwanese) indexes will not have to re-allocate positions. This eliminates any “forced selling” that may have taken place for South Korean ETFs or funds. EWY currently is a HOLD, based upon its 50-day moving average.

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iShares MSCI Taiwan Index (EWT) dropped 2.27% over the previous five days. The MSCI region reclassification news noted above for EWY is relevant for this portfolio position as well. This position is a BUY.

Market Vectors Indonesia ETF (IDX) came in nearly flat, losing a fractional 0.03% this past week. As noted in a recent Wall Street Journal article by Liem Denning, “Indonesia is the next Brazil” and is poised for rapid growth over the coming decade. Recently falling below its 50-day moving average, IDX is a HOLD.

JinkoSolar Holding Co., Ltd. (JKS) had a tough week and fell by 5.40%. JKS is likely to see future price increases due to recent news that demand for solar energy is expected to return in the second half of 2011. JKS made a notable run at its 50-day moving average recently, but currently is a HOLD.

Las Vegas Sands Corp. (LVS) decreased 1.19% during the past week. An analyst recently looked at LVS using “DuPont profitability analysis,” which looks at Return-on-Equity (ROE) for stocks that are undervalued based upon earnings growth projections. LVS scored highly and its ROE is expected to grow year-over-year. This is one more positive sign for future gains in this play on “Asia’s Las Vegas.” LVS remains a HOLD while it trades below its 50-day moving average.

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Stocks enjoyed a solid bounce Friday morning, as news of a Greek-debt compromise heartened investors. As a result of Friday's gains, the markets technically avoided extending the recent sell-off to seven consecutive weeks. But it sure didn't feel like it, as the overall mood remains uncertain. The performance of your Bull Market Alert portfolio for the week was mixed as well, and you were stopped out of Nabors Industries (NBR) at a loss.

Truth be told, t

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