It was another solid week for U.S. markets during the holiday-shortened trading period. The S&P 500 was up 1.4%, while the Dow Jones Industrial Average rose 1.33%. In contrast, the MSCI Emerging Markets index actually ended the week slightly in the red.
It also was another strong week for your Alpha Investor Letter portfolio. Nine out of 16 positions hit 52-week highs last week. Your big gainers included Stratasys (SSYS), up 5.97%; iShares MSCI Turkey Index Fund (TUR), climbing 3.60%; Two Harbors (TWO), rising 2.38%; Lennar Corp. (LEN), jumping 3.42%; Sociedad Quimica y Minera de Chile S.A. (Chemical & Mining Company of Chile) (SQM), growing 1.96%; PowerShares Global Listed Private Equity Portfolio ETF (PSP), notching 1.32%; and Market Vectors Indonesia Index ETF (IDX), spurting 1.29%.
Both Market Vectors Indonesia Index ETF (IDX) and Sociedad Quimica y Minera de Chile S.A. (Chemical & Mining Company of Chile) (SQM) moved back to a BUY.
Today, I am also recommending that you sell your position in iShares MSCI Malaysia Index (EWM) for a 14.33% gain (including dividends), as local politics are hitting this position hard. There are simply too many other opportunities out there to risk your hard-earned money on this one.
Also note that I have raised your stops on many of your positions, including Lennar (LEN) to $37.00, iShares MSCI Turkey Index Fund (TUR) to $68.00; Stratasys (SSYS) to $73.50; Visa (V) to $148.00; PowerShares Global Listed Private Equity Portfolio ETF (PSP) to $10.15; iShares MSCI Mexico Investable Market Index (EWW) to $70.25; and the Vanguard Global ex-U.S. Real Estate Index Fund (VNQI) to $51.50.
While I don’t want to take away the punchbowl from the party, I have to remind you that at some point we will have a pullback in the market.
We have not only had a very strong run, but also volatility is almost ominously low.
So I want to outline my philosophy in dealing with your current Alpha Investor Letter positions.
I see three options.
First, I could recommend that you do nothing. Essentially assume that — barring a fundamental deterioration like we’ve seen in iShares MSCI Malaysia Index (EWM) — you hold onto everything you’ve got.
Second, I could recommend that you “take you profits and run.” But that would mean you’d miss out on some very big gains like the ones you’ve had in Visa (V) over the past year.
Third, I can tighten the stops so that you protect at least some of your gains in the event of a market pullback, while really hoping I can keep you in the positions for even bigger gains. This is what I have done.
Now, this is always a careful balancing act…
If I make the stops too tight, then you’ll be stopped out of your current positions too soon, and forego future profits.
If I keep them too loose, then you will see your existing profits evaporate.
My rule of thumb is that I use tighter stops for positions in which you are already showing a profit. I want to protect your gains, even in case of the inevitable pullback.
Remember, we can always re-enter a position after we’ve sold it. In fact, it was this rule of thumb that accounts for a big chunk of your current Alpha Investor Letter portfolio, featuring “re-entered” positions in July and August.
Portfolio Update
iShares JPMorgan USD Emerg Markets Bond (EMB) dipped 0.11% over the past four trading days. Morningstar rates EMB as a “4 out of 5 stars,” and TheStreet.com ranks EMB as a “Buy.” Stopping just shy of the 50-day moving average (MA), EMB is currently a HOLD.
Berkshire Hathaway (BRK-B) rose 0.58% last week. BRK-B leveled off a bit last week, but managed to spike up to hit a new 52-week high yesterday. Berkshire announced plans to increase the capital spending in U.S. rail freight operator BNSF Railway Company to approximately $4.1 billion in 2013 — a bullish bet on the U.S. economy. Although I have not read the book yet, Carol Loomis’ new book on Warren Buffett entitled “Tap Dancing to Work” is getting great reviews. If you are a Warren Buffett fan, you may find this a good read. BRK-B is a BUY.
Visa Inc. (V) dipped 0.87%. Deutsche Bank reaffirmed its ‘Buy’ rating on Visa yesterday and holds a $177 price target — an 11.25% move above Tuesday’s close. V recently touched the 20-day moving average and then gained ground over the past two sessions. This is likely a prime point to buy more Visa Inc. V is scheduled to report earnings on Feb. 6 and remains a BUY. Raise your stop to $148.00.
Market Vectors Indonesia Index ETF (IDX) gained 1.29%. IDX popped above the $29.00 resistance level once again last week. IDX may finally break out of its rolling pattern and move higher. However, if you are playing the roll, feel free to take a little off for the next week or so and then buy again near $28. As they say on Wall Street, “This trade will continue to work… until it doesn’t.” IDX is a BUY.
WisdomTree Japan SmallCap Dividend ETF (DFJ) added 0.86% over the past week. Japan’s Central Bank announced that it was doubling the inflation target to 2%, and committed to purchase assets through 2014 — effectively starting its own “quantitative easing.” This may light a fire under DFJ. DFJ is a BUY.
PowerShares Global Listed Private Equity Portfolio ETF (PSP) rose 1.32%. PSP continued higher last week to hit another 52-week high. This exchange-traded fund is now up 19% since you purchased it, and its chart is giving no indication of a stall in the rally over the short term. PSP is a BUY. Raise your stop to $10.15.
Lennar Corp (LEN) gained 3.42% last week as traders bought during the recent earnings dip. You should do the same. Given the bullishness in the housing sector and the broader markets, Lennar should continue higher in the months ahead. LEN will pay a $0.04 dividend on Jan. 30. LEN is a BUY. Raise your stop to $37.00.
iShares MSCI South Korea Index Fund ETF (EWY) came in flat last week. EWY traded sideways last week as it tested the $62.00 support level. A move back up to $65 is looking quite promising. EWY is a BUY.
iShares MSCI Mexico Investable Market Index (EWW) rose 0.72% over the past four trading days. After taking a breather last week, EWW is attempting to move higher and even hit a new 52-week high. Inflows to Mexican equity funds have beaten Brazilian equity fund inflows for the last eight weeks in a row. EWW is a BUY. Raise your stop to $70.25.
Sociedad Quimica y Minera de Chile S.A. (Chemical & Mining Company of Chile) (SQM) gained 1.96%. SQM continued its positive trading pattern last week, successfully testing the 50-day MA. Many specialty-chemical producers, including SQM, are seeing positive moves as China’s economy continues its rebound. SQM is a BUY.
Vanguard Global ex-U.S. Real Estate Index Fund (VNQI) was flat last week. VNQI remained just below the $56 resistance level last week as it attempts to break above the thrice-tested and formidable 52-week high price level. However, with volume remaining near the 200,000 share per day level — nearly four times the average daily volume just before Dec. 2012 — it’s apparent that plenty of bulls are out there battling the bears for a move higher. VNQI is a BUY. Raise your stop to $51.50.
Stratasys (SSYS) jumped 5.97% and hit a new 52-week high. Stratasys and its 3D-printing competitor 3D Systems have been making news lately, sending both stocks soaring. A recent analyst report fanned the flames, reporting that the firms are set to unveil above-consensus Q4 earnings in the coming weeks. SSYS is scheduled to report earnings on Feb. 5. SSYS is a BUY. Raise your stop to $73.50.
iShares MSCI Turkey Index Fund (TUR) added another 3.60%, hitting a new 52-week high before leveling off for the duration of the trading week. Look for any pullback as a buying opportunity. TUR is a BUY. Raise your stop to $68.00.
S&P Global Timber & Forestry Index Fund (WOOD) gained 1.13%. WOOD was back on fire last week, hitting a new 52-week high. This benchmark fund, comprised of 25 companies in the timber industry, is flying high on the timber rally. WOOD is a BUY.
Two Harbors (TWO) rose 2.38% over the past four trading days, hitting another 52-week high. TWO’s rally extended yet another week and showed no signs of slowing as volume even managed to increase over the last three days. TWO is scheduled to report earnings on Feb. 5. TWO is a BUY.
