Book 10.04% and 52.38% Gains — and a new 3X Leveraged Bet on a Bounce in Small Caps

Nicholas Vardy

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

Markets pulled back across the board this week, with the Dow Jones down 0.31%, the S&P 500 falling 0.44% and the NASDAQ dropping 1.70%. The MCSI Emerging Markets Index had its worst week in a month, dropping 1.61%.

You did have some big gainers in your Bull Market Alert portfolio, however. These included Ambarella Inc. (AMBA), which jumped 5.43%; Integrated Device Technology (IDTI), which gained 1.93%; and JA Solar Holdings Co. Ltd. (JASO), which rose 1.87%. MasterCard (MA) also hit a new 52-week high.

Take advantage of Ambarella Inc.’s (AMBA) big gains last week and sell the stock for a 10.04% gain and your remaining May $70 call options (AMBA150515C00070000) for 52.38% gains.

Recall that you also sold half of your JASO call option position last Thursday, booking a 52.17% gain.

You were stopped out of the WisdomTree Japan Hedged Equity ETF (DXJ) with a 15.8% gain.

Two positions, the ProShares Ultra Nasdaq Biotechnology ETF (BIB) and WisdomTree Europe Hedged Equity Fund (HEDJ), moved to a HOLD.

This week’s Bull Market Alert recommendation, the Direxion Daily Small Cap Bull 3x ETF (TNA), is a bet on a technical bounce in U.S. small-cap stocks.

TNA is a market-cap-weighted basket of small-cap U.S. stocks. The fund is leveraged 3x and, like all the leveraged funds, is intended only for short-term investment purposes.

The chart below illustrates why I expect this position to bounce in the weeks ahead.


First, TNA is oversold on the basis of “slow stochastics” — one of my favorite technical indicators — as shown at the top of this chart. As you can see, each of the last three times it has done this, it has gone on to rally at least 10% in the coming weeks.

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Second, it has traded below its lower Bollinger bands, dropping more than two standard deviations below its recent trading range. Again, on each of the past three occasions it has done this, TNA has rallied strongly.

(As an aside, I note that your position in the ProShares Ultra Nasdaq Biotechnology ETF (BIB) has a very similar chart, and I expect it to bounce strongly as well.)

So buy the Direxion Daily Small Cap Bull 3x ETF (TNA) at market today and place your stop at $70.00.

If you want to play the options, I recommend the Direxion Daily Small Cap Bull 3x ETF June $84 calls (TNA150619C00084000), which expire June 19 and last traded at $5.90.

TNA is purely a speculative vehicle and is incredibly liquid. With a short-term investment like a leveraged or inverse fund, it’s crucial to be able to move in and out of a holding at a moment’s notice. So keep your eye out for any Special Alerts in the coming days and weeks.

Portfolio Update

Halyard Health Inc. (HYH) lost 0.85% last week. The company reported earnings of $21.7 million in its first quarter this morning, with a profit of 46 cents per share. Earnings, adjusted for one-time gains and costs, came to 51 cents per share on revenues of $394.2 million in the period. Halyard expects full-year earnings in the range of $2.30 to $2.50 per share. HYH  fell below its 50-day moving average (MA) on the news and is a HOLD.

MasterCard (MA) rose 0.58%, spiking to a new 52-week and all-time high last Wednesday on the back of a positive first-quarter 2015 earnings report. MasterCard reported $0.89 EPS vs. a $0.80 EPS estimate. Revenue came in at $2.23 billion vs. an estimate of $2.28 billion. MA experienced a 12% increase in transaction processing, as well as a decrease in operating costs. Susquehanna increased its price target on MA from $91 to $105. MA is a BUY.

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JA Solar Holdings Co. Ltd. (JASO) gained 1.87%. You sold half of your JASO options position last Thursday, booking a 52.17% gain. JASO also announced Thursday that its annual shareholder meeting will occur on June 1. JASO is a BUY.

ProShares Ultra Nasdaq Biotechnology ETF (BIB) fell 11.09% last week. ProShares announced last Friday that BIB will experience a forward share split at a 2-for-1 ratio. Note that this will not change the value of the position but simply double the number of your shares. The split will apply to shareholders of record as of the close of the markets on May 18. BIB moved to a HOLD.

Integrated Device Technology (IDTI) gained 1.93%. IDTI will report earnings today after markets close. Analysts’ expect IDTI’s numbers to fall in line with expectations of $0.26 EPS on revenue of $157.87 million. IDTI is a HOLD.

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Nicholas Vardy

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