Markets Looking at Short-Term Bounce

Nicholas Vardy

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

Wall Street fell for a third day Tuesday on fears that Europe still is failing to tackle its debt crisis. However, European markets are rallying strongly this morning on news that German courts have rejected a suit that would block Germany from contributing to the Greek bailout plan.

The U.S. markets took another beating over the past week. As of Tuesday’s close, the S&P 500 is down 15% from its May 1 high, and Aug. 9 marks the 2011 low point of 1,101. We are still 5.5% above that low point, based on yesterday’s close. Since definitively breaking below 1,250 at the beginning of August, the S&P 500 has traversed between a low of 1,120 and a high of 1220 on five occasions, marking a definitive, if extremely unattractive trading range.
Even in the face of current market negativity, there are reasons to expect at least a short-term bounce, based on the market’s action. The S&P 500 has gapped down at least 2% on the first day of a new week 13 times, as it did yesterday. Buying on that day’s close and holding for two days resulted in 10 winning trades out of the 13 instances. The winning trades boasted an average return of 3.5%.
Nearly all of your Alpha Investor Letter positions held their ground this week, despite significant losses in the broader markets. None of your other positions changed more than 1% with the exception of WisdomTree Japan SmallCap Dividend Fund (DFJ), which fell 2.25%. 
Market Vectors Gold Miners ETF (GDX) was the single bright spot in the portfolio, rising 5.47%. Gold stocks have benefited as the price of gold jumped to a record high above $1,920. The most recent price surge occurred after Switzerland pegged its currency to the euro in an effort to prevent its rapid appreciation in an extended spat of safe-haven buying.
There was no change in BUY/HOLD statuses of any of your positions. Our “Watch List” positions continue to languish as markets remain range-bound. I am still looking for good entry points as these stocks recover to their 50-day moving averages.

Portfolio Update

WisdomTree Dreyfus Chinese Yuan Fund (CYB) lost a mere 0.08% last week. Rebecca Patterson, chief market strategist at J.P. Morgan, summed up investment in the Chinese yuan quite nicely today with the following quote — “While less liquid and accessible, the yuan may be the ultimate safe haven today outside of gold.” CYB is above its 50-day moving average and remains a BUY.
WisdomTree Japan SmallCap Dividend Fund (DFJ) fell 2.25% for the week. DFJ’s top sector weightings are Industrials (21%), Consumer Cyclicals (20%) and Basic Materials (15%). This positions DFJ nicely to benefit from Japan’s recovery from the earthquake. DFJ remains a HOLD for now.
Las Vegas Sands Corp. (LVS) held its ground by posting a 0.09% gain. The August report on Macau gambling revenue showed a 57% increase for the month of August. Total regional gross revenues also rose for the third month in a row. LVS flirted with its 50-day moving average today, but is a BUY.
Market Vectors Gold Miners ETF (GDX) rose 5.47% over the past five trading days, hitting a record high and breaking out of a trading range going back to last December. Gold miners have lagged the price of gold itself, but are now looking to catch up. President Obama’s big Thursday speech will likely call for more economic stimulus and federal spending. Markets will hate that, and gold will continue its uptrend. GDX is a BUY.
Market Vectors Indonesia (IDX) remained flat, losing 0.32% last week. Over the past year, investors have increasingly been looking for “safe haven” investments in difficult global markets. Perhaps surprisingly, Indonesia’s excellent economic performance today qualifies it as a “safe haven” — and has made it the top-performing equity market in the world. After making a good attempt, IDX bounced downwards from its 50-day moving average and remains a HOLD.

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