The “Relief Rally” Takes a Breather

Nicholas Vardy

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

The recent “relief rally” took a predictable break after a rapid run in the major market indexes.

The economic uncertainty plaguing Greece over previous months has rolled on through to Portugal, and now has its sights set on Italy. This negative sentiment is causing grief not only for European markets, but for markets all over the globe. The DOW Industrial Average came out on top last week, posting a 0.98% loss, while the S&P 500 Index and NASDAQ Composite Index fared worse, posting losses of 1.81% and 1.55%, respectively.

Not surprisingly, all of these global difficulties have had a negative impact on your Alpha Investor Letter portfolio. There were, however, exceptions. The WisdomTree Dreyfus Chinese Yuan Fund (CYB), WisdomTree Japan SmallCap Dividend Fund (DFJ), Market Vectors Indonesia ETF (IDX), and Freeport-McMoRan Copper & Gold Inc. (FCX) all managed to hold tight last week, or even make small gains.

The rest of your portfolio positions registered moderate losses, in line with international markets. As a volatile play in the Chinese solar industry, JinkoSolar Holding Co., Ltd. (JKS), took a significant hit last week and is now a HOLD. ProShares UltraShort Lehman 20+ (TBT) also moved to a HOLD after falling below its 50-day moving average.

Yesterday’s Fed meeting minutes failed to yield any significant insight into its thinking. On the one hand, the Fed minutes did make note of a proposed “exit strategy” from recent Fed actions to "normalize monetary policy”.  On the other hand, Fed members raised the possibility of additional stimulus if growth did not begin to increase and unemployment remained stubbornly high. Investors will be looking to comments made by Chairman Bernanke to clarify this confusing message during Wednesday’s testimony before the House Financial Services Committee.

After selling off sharply near the close after Moody’s downgrade of Ireland’s debt to “junk” status, the S&P 500 Index came to rest directly on its 50-day moving average today. The DOW Jones Industrial Average and NASDAQ Composite index are nearing the same levels. This signifies yet another inflection point in the market.

This week also marks the start of earnings season. Any positive news coming out of Washington D.C., regarding a debt-ceiling deal should help settle markets. This is an unusually news-driven market, subject to “Mr. Market’s Mood Swings” more than usual. As a result, I expect the market to continue to be choppy over the coming weeks.

Portfolio Update

WisdomTree Dreyfus Chinese Yuan Fund (CYB) slid 0.31% over the past week. China raised interest rates last week for the third time this year, as inflation hit 5.5%. Speculation currently sees inflation going to 6%. Below its 50-day moving average, CYB is a HOLD.

WisdomTree Japan SmallCap Dividend Fund (DFJ) ended the week with a gain of 0.66%. DFJ is not only holding onto its recent gains, but also managed to eke out a small gain as global markets turned negative over the past week. That’s a positive sign for this position and the Japanese recovery. Hanging tough above its 50-day moving average, DFJ is a BUY.

iShares MSCI Singapore Index (EWS) fell 1.74% over the previous week. EWS is weighted heavily in the financial and industrial sectors. With estimates calling for Singaporean GDP to grow by 6.2% in 2011 and 5.5% in 2012, Singapore remains a solid bet. Slightly below its 50-day moving average, EWS is currently a HOLD.

iShares MSCI Malaysia Index (EWM) dipped 2.14% for the week. Recently hitting an all-time high, EWM is trading at its highest levels since 1997. Of all major emerging markets, EWM is arguably one of the best. Now trading above its 50-day moving average, EWM is a BUY.

iShares MSCI South Korea Index (EWY) lost 2.89%. Last week, South Korea won the right to host the 2018 Winter Olympics. This “big win” for the country will likely be a “big win” for its stock market as South Korea begins several years of infrastructure expansion.  Based upon its 50-day moving average, EWY is a BUY.

iShares MSCI Taiwan Index (EWT) fell 3.60% over the previous week. With several of the world’s big mobile device players calling Taiwan “home,” this technology-heavy market is entering the strongest part of its year. Currently under its 50-day moving average, EWT remains a HOLD.

Freeport-McMoRan Copper & Gold Inc. (FCX) managed a 0.86% gain thanks to its commodity-based market position. With increased uncertainty in several eurozone countries, gold will likely become much more popular as a safe place to invest. FCX is set to pay a $0.25 dividend on July 13 and reports earnings on July 21. FCX is a BUY.

Market Vectors Indonesia ETF (IDX) dipped just 0.03% last week. As the fourth most-populated country in the world and boasting a 6.2% GDP growth, Indonesia currently is enjoying an extremely strong and stable upward trend in its stock market. Just off its high for 2011, IDX is a BUY.

JinkoSolar Holding Co., Ltd. (JKS) took a 14.54% nose dive over the past five trading days, thanks to rival Renesola issuing a negative pre-announcement on second quarter earnings expectations. The good news is that several solar competitors, including JKS, issued guidance that calls for solar module shipments to increase by more than 30%. JKS is now below its 50-day moving average and is a HOLD.

Las Vegas Sands Corp. (LVS) gave back 1.70% last week. LVS is taking a short breather in its quest to catch-up to its other major Macau competitors, Wynn Resorts and Melco Crown. LVS reports earnings on July 27. Holding well above its 50-day moving average, LVS is still a BUY.

Market Vectors Russia ETF (RSX) dropped 2.60% during its first week in the portfolio. Boston-based ClearStream Investments recently stated that it’s “investment model has been detecting reduced risk in emerging markets” and are 98% invested in this asset class. And RSX is one of the primary ETFs recommended by their model. Coming to rest right back at its 50-day moving average, RSX is currently a BUY.

ProShares UltraShort Lehman 20+ (TBT) fell 6.76% over the past five days. Recent uncertainty in global markets has caused a rush back to the relative safety of the bond market. This is not favorable for our “short” position in bonds. This 2x play on a fall in U.S. treasuries is now a HOLD.

Vale S. A. (VALE) lost 1.99% last week. VALE just received the first of 19 “mega-bulk carriers” that it has on order. These 400,000-ton vessels will ferry iron ore from VALE’s mines directly to China to meet rapidly growing demand for steel manufacturers. VALE reports earnings on July 28. VALE is well above its 50-day moving average and is a BUY.


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