Booking Some Big Profits after a Big Bull Run

Nicholas Vardy

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

Global stock markets continued to rise this past week, with increases of 1.77% in the Dow Jones and 1.02% in the S&P 500. The MCSI Emerging Markets Index ended the week down 0.82%.

Your big gainers in your Alpha Investor Letter portfolio this past week were Lennar Corp. (LEN), up 1.45%; Berkshire Hathaway (BRK-B), jumping 1.39%; and PowerShares Global Listed Private Equity Portfolio ETF (PSP), climbing 1.31%.

At the same time, I am seeing signs that investors are starting to take risk off of the table. You saw this situation, in particular, in your more volatile Alpha Investor Letter holdings.

For example, your bet on 3D printing sensation Stratasys (SSYS) tumbled 11.49% over the course of the week. The iShares MSCI Turkey Index Fund (TUR) also corrected 4.18%, after disappointing news about the government’s expected credit rating upgrade. Sociedad Quimica y Minera de Chile S.A. (Chemical & Mining Company of Chile) (SQM) fell 2.68% and moved to HOLD.

The past few years have been very much about “risk on” and “risk off” markets.

An unweighted model of investor sentiment surveys developed by recently reached its highest level since 2004! On average, more than two out of three investors expect the market to continue rising. When the sentiment surveys had shown this much optimism in the past, stocks tended to wipe out all of their recent gains within a short period.

This positive investor sentiment, combined with the fact that your positions have had such a strong run in the past two months, has convinced me to recommend that you also take some “risk off” in your Alpha Investor Letter portfolio and book some of your big gains.

So, this week, I am recommending that you SELL:

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1) Stratasys (SSYS) for a 22.82% gain;
2) iShares MSCI Turkey Index Fund (TUR) for a 12.01% gain;
3) iShares MSCI South Korea Index (EWY) for a modest 7.12% gain; and
4) The Market Vectors Indonesia Index ETF (IDX) for a 4.10% gain.

I am going to place all of these positions on our “watch list” for potential re-entry at a later date. Remember, we’ve already re-entered Stratasys — a particularly volatile position — once already.

I also want to remind you that we have our Alpha Investor Letter quarterly conference call for subscribers scheduled for Tuesday, Feb. 5, at 2:00 PM EST. To learn the details and to sign up, please click here.

And, as a courtesy, I want to bring your attention to my latest special report: The Top 12 Stocks You Should Buy Right Now. You can get it FREE from my website.

Portfolio Update

iShares JPMorgan USD Emerg Markets Bond (EMB) dipped 0.87% over the past five trading days. With the U.S. Federal Reserve clearly stating it intends to keep interest rates low through 2013, investors will continue to look outside of American borders for “safe yield.” The demand for emerging market bond exchange-traded funds (ETFs) doubled in 2012, and this trend is extremely likely to continue. EMB is a HOLD.

Berkshire Hathaway (BRK-B) rose 1.39% last week. Berkshire Hathaway submitted a filing with the U.S. Securities and Exchange Commission (SEC) on Monday stating that the corporation will issue an undisclosed amount of senior unsecured debt sometime after Feb. 1. Berkshire Hathaway CEO Warren Buffett is already sitting on tens of billions of dollars in cash and liquid assets. This new quest for capital lends even more credence to rumors that Mr. Buffett is planning one or more significant acquisitions in the near future. BRK-B is a BUY.

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Visa Inc. (V) dipped 1.50%. The Center for Financial Inclusion at Accion recently announced an initiative with Visa Inc. and Citi called the Financial Inclusion 2020 campaign — an undertaking that potentially could bring big gains to Visa’s bottom line. Its aim is to bring basic financial services to the more than two billion people worldwide who lack access to them, engaging the private sector, governments, non-governmental organizations (NGOs) and other entities to develop a comprehensive strategy. Visa is scheduled to report earnings on Feb. 6. V is a BUY.

WisdomTree Japan SmallCap Dividend ETF (DFJ) ended the week flat as investors struggled to find direction in the wake of recent Central Bank actions. DFJ’s 50-day moving average is in a robust rising trend and will likely help push trading in a positive direction. DFJ is a BUY.

PowerShares Global Listed Private Equity Portfolio ETF (PSP) repeated last week’s move, adding another 1.31% and hitting yet another 52-week high. Private equity firms have been buying the long-term property and infrastructure debt weighing on European bank balance sheets in an effort to capitalize on the resurgence of Europe. With PSP significantly weighted in financials, this strategy may pay off handsomely in the future. PSP is a BUY.

Lennar Corp (LEN) gained 1.45% last week. Daniel Fulton, CEO of Weyerhaeuser (one of the largest homebuilders in the United States), last week predicted a 30% jump in housing starts for 2013. And, the latest Standard & Poor’s/Case-Shiller Home Price Index, released just yesterday, confirmed the tremendous strength in the housing recovery. LEN will pay a $0.04 dividend today. LEN is a BUY.

iShares MSCI Mexico Investable Market Index (EWW) rose 0.84% during the past five trading days. Mexico is not only making gains in its exporting, but also imports are on the rise — a sign of a strengthening economy. Mexican imports from the United States have risen from $97.4 billion in 2002 to nearly $200 billion last year. EWW is a BUY.

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Sociedad Quimica y Minera de Chile S.A. (Chemical & Mining Company of Chile) (SQM) lost 2.68%. Although SQM is not scheduled to report earnings until early March, a look back at the early-January earnings reports for competitors like Monsanto and Mosaic paints a positive picture for a SQM comeback. Demand for agricultural yield is quickly growing, and SQM is in a sweet spot to profit from this trend. SQM is a HOLD.

Vanguard Global ex-U.S. Real Estate Index Fund (VNQI) traded flat yet another week as volume remained elevated and the $56 resistance level remained unbroken. VNQI will likely start to move in the next week or two as the 20-day and 50-day moving averages, both rising up from below, help to push this fund higher. VNQI is a BUY.

S&P Global Timber & Forestry Index Fund (WOOD) ended the week broadly flat, but still eking out a new 52-week high. The S&P/Case-Shiller Home Pricing Index reflected a rise in home prices for the 10th month in a row, and logged the biggest year-over-year jump since August 2006. The huge spike in lumber demand has already started as homebuilders stockpile wood and ready for the spring rebuilding of New Jersey’s storm-damaged coast. WOOD is a BUY.

Two Harbors (TWO) also hit a new 52-week high. With its earnings report looming, expect some volatility in this holding as traders jockey their positions. TWO will report earnings on Feb. 6. TWO is a BUY.

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