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 the carnage.
This week’s Bull Market Alert pick is all about protecting your downside.
Last week was significant in that, after dropping 11.47% for the week, global emerging markets officially have entered a bear market. The MSCI Emerging Markets Index is now down 16% just in the month of September and 27.5% since it peaked on May 3.
More worrisome is its chart. While U.S. investors fret about whether the S&P 500 will hold its support level of 1,120 this week — the low that it reached on Aug. 10 — emerging markets dropped down through the analogous level last Tuesday, Sept. 20.
That’s bad news.
But thanks to the advent of exchange-traded funds (ETFs) like ProShares UltraShort MSCI Emerging Mkts (EEV), there is a way to profit from the market’s downward movements. The performance of this ETF corresponds to twice (200%) the inverse (opposite) of the daily performance of the MSCI Emerging Markets Index. That is, if the MSCI Emerging Market Index drops 2% today, EEV should rise 4%.
Think of EEV as a “hedge” to your current holdings. Any gains in EEV will help offset any losses in your current portfolio, assuming the market continues to go down. Because these changes are calculated on a daily basis, all sorts of distortion occur if you hold this a long time. But over the short term, it serves its purpose.
My only hesitation with recommending EEV is that we are entering a seasonally stronger time of the year, precisely when emerging markets tend to rally. That said, with the uncertainty in global financial markets, I think it is worth having this hedge in your Bull Market Alert portfolio to protect your downside. That’s why I also hold it for my clients at my money management firm Global Guru Capital, as well.
So buy the ProShares UltraShort MSCI Emerging Mkts (EEV) ETF at market today and place your stop at $32.00. Here’s a word of warning. This is a volatile position, so you may want to take a smaller than normal position size.
Portfolio Update
Alliance Resource Partners L.P. (ARLP) fell 4.14% this past week. Considering the “commodities carnage” that Fed Chairmen Ben Bernanke unfurled last week, this loss could have been much worse. ARLP is below its 50-day moving average and is a HOLD.
Bank of Ireland (IRE) remained steady through the Fed-induced market crisis, losing only 0.95%. IRE’s stock price jumped nearly 8% Friday on news that it would be allowed to impose losses on some of its “junior bondholders.” This “burden-sharing” move is one result of new banking legislation designed to assist in Ireland’s financial crisis. In effect, this helps IRE with its recapitalization efforts. IRE remains a HOLD.
National Bank of Greece SA (NBG) fell 2.44% over the past five trading days. Rumor and conjecture swirled last week as investors looked for signs that European policy makers will remedy the region’s debt crisis. The latest effort by the G-20 group involves a coordinated plan to increase the effectiveness of a 440-billion euro bailout fund designed to aid European banks. NBG is a HOLD.
Spreadtrum Communications, Inc. (SPRD) took a 4.45% loss last week. In tandem with the broader market, SPRD took a breather from its two-month, straight-line climb. With its stock price up over 60% in just the past quarter, SPRD has done better than both Intel and Texas Instruments. SPRD remains a BUY.
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