The “Twist” Makes the Markets Shout

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
The roller-coaster ride continued last week as the S&P 500 Index bounced off of the 1,120 level yet again. In the end, the S&P 500 Index dropped 2.66% and the MSCI Emerging Markets Index fell 4.15%. That made it the worst week that the S&P 500 has experienced since the global meltdown three years ago.
Much of last week’s uncertainty was in response to the U.S. Federal Reserve’s version of “The Twist.” Simply put, the Fed is selling its short-term holdings and buying more long-term holdings, in an attempt to drive interest rates down. The markets, however, were looking for a much larger rescue effort. When they did not get it, the markets sold off viciously. Add a good dose of worry over Europe, and no wonder last week’s roller-coaster ride was down.
Your Alpha Investor Letter had a tough week, as well. A whole range of previously safe assets, such as gold, emerging markets and U.S. government debt, fell off of a cliff at the end of last week.
As a result, you hit your stop in iShares JPMorgan USD Emerging Markets Bond (EMB) as emerging market currencies took a battering in last Thursday’s sell-off. I am keeping this position on the Watch List as a potential candidate for re-entry.
Your Market Vectors Gold Miners ETF (GDX) position ended the week 13.5% lower after experiencing its sharpest three-day pullback in gold prices in 28 years. Lastly, Las Vegas Sands (LVS) dropped a neck-snapping 8.5% while the ever-steady Chinese yuan remained stoic in the face of global market mood swings.
Last week’s trading action confirms that you have to search long and hard for safe-haven assets. While I am hopeful that the market’s recent jump marks a short-term bottom, I’ll believe it when I actually see it. And that will happen when the S&P 500 Index trades above 1,220… and stays there. If this happens, I will be much more inclined to make recommendations to re-enter the market based on the expectation of a “traditional” Q4 rally.

Portfolio Update

WisdomTree Dreyfus Chinese Yuan Fund (CYB) posted a 0.94% loss last week. Although never in danger of hitting our stop price, CYB experienced some very big price swings last week, relative to its norm. CYB’s average “large” intraday price swing falls in the $0.08 range. CYB made an intraday swing of $0.25 on Friday and an ultra-large $0.44 move on Monday. Due to recent European news, similar currency volatility also is occurring in the dollar and euro currencies. CYB fell below its 50-day moving average and is a HOLD.
WisdomTree Japan SmallCap Dividend Fund (DFJ) managed a 0.44% gain for the week. DFJ popped above its 50-day moving average once again today. The continued testing of this upper “resistance” price level suggests that as the broader markets find their footing, so will your position in DFJ. DFJ appears well positioned to reap the benefits of a fourth-quarter rally. DFJ is back to a BUY.
Las Vegas Sands Corp. (LVS) dropped 8.05% over the previous five trading days. LVS has hit a rough patch based on unsubstantiated reports that the Macau region may experience a slowdown. However, Goldman Sachs, Jefferies and Citi all recently raised their price targets for LVS. The Macau gambling sector is set for a strong October boosted by the Golden Week holiday. LVS is currently a HOLD
Market Vectors Gold Miners ETF (GDX) fell 13.04%. The recent U.S. Federal Reserve’s move to depress long-term interest rates took the commodities sector by surprise. Investors around the globe are feeling the pain as large financial institutions and hedge funds liquidated their gold holdings in droves. Although primarily considered a safe-haven asset, gold is also a commodity — and subject to commodity-like price swings. GDX is now a HOLD.

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Wow, what a lousy week. The Dow lost 6.4%. That's its worst week since October 10, 2008. The S&P 500 dropped 6.5% and the Nasdaq fell 5.3%.
You were stopped out of both of your precious metals positions ProShares Ultra Silver (AGQ) and ProShares Ultra Gold (UGL), as the bottom dropped out of both “safe-haven” markets. Your other Bull Market Alert portfolio positions held up relatively well, considering t


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