A Sharp Pull Back in the Markets

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 negative, holiday-shortened week for global stock markets, with the Dow Jones tumbling 1.48%, the S&P 500 falling 1.11% and the NASDAQ down 0.74%. The MCSI Emerging Markets Index ended the week down 1.68%.

Big gainers in your Alpha Investor Letter portfolio included Illumina Inc. (ILMN), which rose 1.46%.

A handful of positions hit new 52-week highs over the course of the week. These include the Global X Guru Index ETF (GURU), Markel Corp. (MKL), Skyworks Solutions Inc. (SWKS), Guggenheim S&P 500 Equal Weight ETF (RSP) and WisdomTree Japan Hedged Equity ETF (DXJ).

Several positions dropped below their 50-day moving averages and changed to a HOLD. These include Berkshire Hathaway (BRK-B), Vanguard Russell 2000 Index ETF (VTWO), Markel Corp. (MKL) and the iShares MSCI Philippines (EPHE).

The S&P 500 broke down sharply yesterday in its biggest drop since May 5, and it promptly erased the last seven days’ worth of gains. This is highly unusual. While trading at a 52-week high at some point within that week, we’ve seen eight other such occurrences since 1960, according to sentimentrader.com. Every single one of them led to lower prices in the S&P over the next month. Market sentiment also abruptly switched to “fear” in CNN’s “Fear and Greed Index.”

As I have noted many times before, we are in a seasonally weak time of the year. That means it is very much a stock pickers’ market. That’s not bad news for your portfolio. After all, over the past month, five of your positions are up significantly — Skyworks Solutions Inc. (SWKS), Illumina Inc. (ILMN), Actavis plc (ACT), Markel Corp. (MKL) and Berkshire Hathaway (BRK-B).

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Finally, don’t miss my free subscriber-only call today, “How to Play the Last 4 Innings of the Biotech Boom,” at 1:00 p.m. EDT.

Participating in the event is easy — all you need to do is answer your phone when we call you between 12:55 and 1:05 p.m. Eastern (9:55 and 10:05 a.m. Pacific).

I look forward to connecting with you this afternoon.

Portfolio Update

iShares S&P Global Timber & Forestry Index (WOOD) dipped 0.83% last week as the broader market indexes suffered drops in excess of 1%. Although WOOD captures timber’s performance on a global scale, its weighting is nearly 50% in U.S. lumber. Twenty percent of China’s lumber imports come from the United States and, with China’s economic stimulus efforts in overdrive, analysts and investors are making bets on Chinese lumber demand moving higher in the near future. WOOD remains above its 50-day moving average (MA) and is a BUY.

Global X Guru Index ETF (GURU) closed the holiday-shortened trading week nearly flat. This fund attempts to capture gains based upon the trades of gurus in the investment world, and the gurus have been doing well as of late. Hitting a new 52-week high last Friday, GURU is once again above its staunch $27 a share resistance level. GURU is a BUY.

Skyworks Solutions Inc. (SWKS) traded flat last week despite broad losses across the markets. This number one gainer in your portfolio also managed to hit a new 52-week high last week and remains close to this price level. Trading volume also was a bit below average. Taken together, this may be a positive sign that SWKS is enjoying broad support amongst investors who are not inclined to sell on the back of a short-term pullback. SWKS is a BUY.

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Market Vectors Biotech ETF (BBH) gave back 0.27% last week. The strength in the biotech sector persisted last week as BBH remained near the $133 a share resistance level — a price level tested twice before since mid-March. Half of BBH’s holdings are in Gilead (GILD), Amgen (AMGN), Celgene (CELG), Biogen (BIIB) and Alexion (ALXN) — and all of these companies have reported moderate-to-strong earnings in previous weeks. The positive outlook remains for BBH. BBH is a BUY.

Actavis plc (ACT) rose 0.55%. Another one of the biotech holdings in the Alpha Investor Letter portfolio, this drug maker managed to gain last week despite the turbulent market conditions. Goldman Sachs listed “the top 50 stocks that matter most to hedge funds” last week. That list shows stocks that most often fall in the top 10 hedge fund holdings. ACT not only came in first, but it beat out major favorites such as number two Apple (AAPL) and number three Facebook (FB). ACT is a BUY.

Google Inc. (GOOGL) closed down just 0.38%. Although down for the week, GOOGL made a move higher late last week to move briefly above the intersection of the 50-day MA and 200-day MA. This technical setup, coupled with two weeks of post-earnings-report overselling, increases the chance of a bullish move in GOOGL. GOOGL is a HOLD.

Illumina Inc. (ILMN) defied the negative gravity of the markets last week to rise 1.46%. Yesterday also marked the 15th day in a row that ILMN made “a higher high.” Morgan Stanley upgraded Illumina from “Equal Weight” to “Overweight” last Thursday as well. ILMN is a BUY.

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Guggenheim S&P 500 Equal Weight ETF (RSP) lost 1.05%, but still managed to hit a new 52-week high early last week. This “smart beta” play on the S&P 500 boils down to owning all of the stocks that make up the S&P 500, each with an equal weighting. This exchange-traded fund also employs a quarterly re-balancing methodology in which it sells winners and buys losers, thus attempting to lock in profits and purchase value. RSP is a BUY.

WisdomTree Japan Hedged Equity ETF (DXJ) rose every day last week to add 0.54% and hit a new 52-week high. Although buying Japan alone remains a winning investment strategy, DXJ’s currency hedging, coupled with a surging U.S. dollar, also helped pushed this position higher last week. DXJ is a BUY.

Nicholas Vardy

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