The Bull Books 44% Option Gains — And Pulls in His Horns

Nicholas Vardy

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

The headlines may be screaming that the S&P 500 is near trading record highs. Yet, beneath the surface, upward momentum in the markets seems to be ebbing. The Dow Jones ended the week up a mere 0.81% and the S&P 500 rose only 0.61%. The Nasdaq actually fell slightly. In a sign that risk may be coming “back on,” the MCSI Emerging Markets Index tumbled a surprising 3.08%.

That said, there was some good news in your Bull Market Alert portfolio last week. You sold all of your remaining call options in Northern Tier Energy (NTI) for a 105.41% gain last Tuesday for your fourth triple-digit percentage gain of 2013. You did hit your stop of $31.80 later in the week, but still locked in double-digit percentage gains in the stock.

Last week’s Bull Market Alert recommendation, ProShares Ultra MSCI Japan (EZJ), jumped 2.59% as that market continued to rise on the back of the Bank of Japan’s new liberal monetary policy.

Mexico’s Fomento Economico Mexicano SAB (FMX) rose 1.83%, as it bucked the negative turn in emerging markets. You sold half of your July $115 calls on Feb. 11 for a 56% gain and another half for 68% on Feb. 25. Today, I am recommending that you sell your remaining July $115.00 calls to lock in gains of 44%. Raise your stop to a tight $109.50.

You were, however, stopped out of Chinese portal Qihoo 360 Technology Co. Ltd (QIHU) at a loss. The Market Vectors Vietnam ETF (VNM) fell below its 50-day moving average and is now HOLD.

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In addition, we are selling our position in Novo Nordisk A/S (NVO). That means we also are selling its September $180 call options.

Overall, I am quite concerned about the state of the market. The Dow Jones Industrial average has risen for an unprecedented 10 consecutive times. Volatility is at or near a record low. The long-term chart of the S&P 500 is forming a “triple top” with nominal highs stretching back to 2000 and 2007. And the “smart money” commercial hedgers in the major equity index futures contracts — the S&P 500, DJIA, Nasdaq 100 and Russell 2000 — are now approximately $62 billion net short those contracts. This is the largest amount in a decade and reflects a collective belief that the markets are due for a correction.

So I am holding off on any new recommendations this week, until we get a sense of which direction the market is set to go.

Portfolio Update

Bank of Ireland (IRE) closed out the week flat, gaining 0.67%. Irish Finance Minister Michael Noonan gave investors another sign last week that the economy is continuing to improve. Mr. Noonan commented that the Irish central bank would sanction banks that fail to help distressed borrowers. He further stated that Irish banks have all the capital they require and are well-positioned to help consumers into more favorable repayment terms. IRE is a BUY.

Fomento Economico Mexicano SAB (FMX) rose 1.83%. FMX held its annual shareholders meeting last Friday and approved two items that every investor likes to hear. Shareholders approved a $1.60 per American Depositary Share (ADS) cash dividend, to be paid half on May 7 and half on Nov. 7, as well as $239,526,600 for a 2013 share repurchase program. FMX is a BUY. Raise your stop to a tight $109.50.

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Banco Santander, S.A. (SAN) was flat last week. With the worst of the European financial fiasco behind it, and SAN’s good balance sheet in front of it, SAN remains a good bet that also pays an 8.3% dividend. SAN is a HOLD.

Market Vectors Vietnam ETF (VNM) dipped 1.48%. The Vietnam government is preparing a roadmap for plans to restructure some of the country’s largest corporations to bolster its economic growth. Changes include the extreme measure of constitutional amendments that decrease the influence of state-run enterprises – which have been somewhat of a drag on the broader free market. VNM moved below its 50-day moving average last week and is now a HOLD.

ProShares Ultra MSCI Japan (EZJ) gained 2.59% last week to hit a new 52-week high. The “Ultra” in EZJ means twice the movement of the popular MSCI Japan Index. With recent economic stimulus actions, a positive news cycle, and high investor interest, this bet on Japan should deliver doubled gains to your portfolio. EZJ is a BUY.

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