Markets Consolidate Recent Gains

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
It was a mixed week for your Alpha Investor Letter portfolio as global markets spent the week pulling back from recent highs. The Dow Jones was down 2.25%, and S&P 500 dropped 2.37%. The MSCI Emerging Markets Index fell 4.28%. With yesterday’s pull back, the S&P 500 stretched its losing streak to four sessions. Both the S&P 500 and Nasdaq closed just above their 50-day moving averages.
 
Your biggest gainer in your Alpha Investor Letter portfolio for the week was U.S. discount retailer TJX Companies (TJX), which rose 3.53%. The iShares JPMorgan USD Emerging Markets Bond (EMB) confirmed its defensive properties, ending the week 0.41% higher.
 
Both the Market Vectors Indonesia Index ETF (IDX) and Statoil ASA (STO) moved back to a HOLD.
 
Overall, your U.S-based stocks continue to outperform their global counterparts. The TJX Companies (TJX), Visa Inc. (V), Stratasys, Inc. (SSYS), iShares Nasdaq Biotechnology (IBB) and Berkshire Hathaway Inc. (BRK-B) all are trading above their long term 200-day moving averages and continue to be attractive from a technical standpoint.
 
The same cannot be said of Yum! Brands Inc. (YUM!), which continues to be buffeted by negative sentiment stemming from a slowdown in the Chinese economy.
 
Many of your other Alpha Investor Letter positions trade more closely in line with the ebb and flow of market sentiment. This includes Asian markets like MSCI Malaysia Index (EWM) and iShares Singapore Index ETF (EWS) as well as the PowerShares Global Listed Private Equity Portfolio ETF (PSP). If its “risk on”, these positions soar. If it’s a “risk off”, they tend to pull back sharply. 
 
Another interesting way of comparing the United States to the rest of the world is through this map calculated by Britain’s Economist magazine based on 2009 GDP.
 
One of the more interesting insights, (not obvious from the map alone), is that Texas has now surpassed New York as the state with the second largest state economy in the United States. In 2009, about 25 million Texans also generated the same economic wealth as 142 million Russians.
 
 
 
 
In 1956, the Soviet Union’s Nikita Khrushchev famously predicted about the United States: “We will bury you!”
 
Less than 50 years later, it didn’t quite work out that way.

Portfolio Update

MSCI Malaysia Index (EWM) lost 1.40% last week. CIMB Group Holdings is the largest holding in EWM, making up nearly 10% of the fund’s assets. CIMB Group is also the second-largest bank in Malaysia and extends its reach to fifteen other countries. The bank has an ambitious growth plan to increase its current massive $19 billion market cap to $31 billion by 2015. EWM is a BUY.
 
iShares JPMorgan USD Emerg Markets Bond (EMB) rose 0.41%. EMB has continued to make “higher highs” every day since breaking out, on strength, above the $114.25 resistance level. EMB is providing investors with that precious and elusive commodity everyone is searching for… steady performance and a 4.62% yield. EMB is a BUY.
 
Berkshire Hathaway (BRK-B) dipped 0.87% over the past four trading days. BRK-B has maintained its position above the 20-day moving average since it breached this level on June 6. BRK-B also posted a new all-time high recently and, after making a slight dip last week, is nearly back to challenge this level once again. Warren Buffett announced Monday that he recently gave a “gift” of $1.5 billion in BRK-B stock to his friends’ charity, the Bill & Melinda Gates Foundation. Don’t you wish Mr. Buffett was your friend? BRK-B is a BUY.
 
Visa Inc. (V) fell 3.21% for the week. Visa Inc. got a nice little bump recently as J.P. Morgan Chase & Co. announced it would sell pre-paid Visa cards at all 5,500 of its branch offices. These cards can be used at any location that accepts Visa, and should give Visa a considerable boost in transactional revenue. V is a BUY.
 
Yum! Brands, Inc. (YUM) was flat once again over the holiday-shortened week. YUM is still moving sideways along the 200-day moving average, maintaining its major $62.50 support level. YUM will pay a $0.28 dividend on July 11 and is scheduled to report earnings on July 18. YUM is well positioned for an upward move if its upcoming earnings report is favorable. YUM is a HOLD.
 
The TJX Companies (TJX) gained 3.53% over the previous week. TJX continued its strong climb last week, even managing a new 52-week high. TJX and its major competitor, Wal-Mart, continue to reap success as discount retailers. TJX is a BUY.
 
Stratasys, Inc. (SSYS) dipped 0.88%. SSYS is scheduled to report earnings on July 25. Analyst estimates are calling for a strong 39% earnings per share figure on 24% Q2 sales growth. SSYS is a BUY.
 
iShares Nasdaq Biotechnology (IBB) fell 2.26% for the week. The Biotech industry has proven immune to the global economic slowdown as IBB managed a 28% gain for the first half of 2012. IBB is a BUY.
 
WisdomTree Japan SmallCap Dividend ETF (DFJ) lost 1.83% over the past four trading days. After pulling back to form a solid base between the $40 – $41 level, DFJ finally managed to launch above both its 50-day and 200-day moving averages in recent weeks. With low Japanese equity valuations and positive monetary policy driving a post-earthquake Japan, this small-cap exchange-traded fund appears to have finally gained its footing. DFJ is a BUY.
 
Market Vectors Indonesia Index ETF (IDX) gave back 4.25%. IDX had a tough first week in your portfolio, dipping below the 50-day moving average by one cent. However, this Indonesian exchange-traded fund holds a 5-star Morningstar rating and will likely push higher over the coming weeks. IDX is a HOLD for the moment.
 
PowerShares Global Listed Private Equity Portfolio ETF (PSP) fell 2.22% last week. A recent report on insider buying lit a fire under PSP three weeks ago, launching this private equity fund straight up through its 50-day moving average. Moving sideways at the moment, look for PSP to continue higher as investors digest these recent sudden gains. PSP is once again a BUY.
 
iShares Singapore Index ETF (EWS) dipped 1.51%. EWS’ largest holding is mobile communication behemoth Singapore Telecom. This telecommunications company is the largest in the region and boasts 450 million mobile phone users. That’s a paying user base larger than the entire population of the United States! EWS is a BUY.
 
Statoil ASA (STO) dropped 5.48% over the past four trading days. In the midst of a huge downturn in the price of crude oil, STO has spent the past two months forming a base between the $22 and $23 price levels. However, STO’s second recent attempt to rally from these low levels has resulted in a strong breech of the 50-day moving average — which is enough to land it squarely back in your Alpha Investor Letter portfolio. STO is scheduled to report earnings on July 26 and is a HOLD.
 

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