Global markets steadied over the past five trading days after the previous week’s sell-off. The S&P 500 ended the week 0.27% higher, while the MCSI Emerging Markets Index recovered 0.82%.
Big gainers in your Alpha Investor Letter portfolio included your two bets on Japan, WisdomTree Japan SmallCap Dividend ETF (DFJ), up 3.33%, and Wisdom Tree Japan Hedged Equity (DXJ), up 2.83%. With Japan’s Nikkei up 2.32% overnight, you can expect to see further gains in your Japanese-related positions in today’s trading.
Your bet on emerging markets small caps — WisdomTree Emerging Markets SmallCap Dividend Index (DGS) — rose 1.17%.
Your bet on timber through the S&P Global Timber & Forestry Index Fund (WOOD) snuck back over its 50-day moving average and is now back to a BUY.
I enjoyed speaking to many of you on yesterday’s Alpha Investor Letter quarterly update call. If you were unable to join me live, you can listen to a replay by clicking here. Based on your questions, I know that many of you are concerned about the price of gold, as well as the prospects of a looming correction.
I wrote about my views on gold in yesterday’s edition of The Global Guru, which you can read by clicking here.
As for a potential market correction, I do think that there is a chance that we may endure an uncomfortable — but not lasting — pullback in the market in the weeks ahead.
If you look at a long-term chart of the S&P 500, you’ll see that we are at a crucial time — and the far right edge of a massive potential “triple top,” stretching all the way back to March 2000 and October 2007.
Truth be told, we did break through to previous highs a couple of weeks ago. And the S&P 500 is within striking distance of that high again, as of yesterday’s close.
But it has failed to make a convincing and sustained move upward through that long-term resistance level. And with weak seasonality in the market approaching — remember the old adage “sell in May and go away” — I am cautious about the coming three or four months.
My cautious view, however, is far from the consensus opinion.
Barron’s financial magazine just came out with its latest semi-annual Big Money Poll, and the results were surprising, if not shockingly optimistic.
This was the first time that the percentage of bearish and very bearish managers has dropped into the single digits, with a combined 7% of total respondents. Put another way, 93% of money managers were essentially in the bullish or the neutral camp.
The last times big money managers were this bullish, after a sustained rally, were in May 2000, May 2006 and April 2011.
All three periods saw stock market corrections shortly thereafter.
Portfolio Update
Berkshire Hathaway (BRK-B) ended the week flat after recovering from a dip to the 50-day moving average (MA) — a level it had not seen since the beginning of the year. One of the many first rules of investing is that “diversification is the only free lunch.” Your single position in BRK-B exposes you to a Warren Buffett-approved diversified mix of: railroads, insurance, financials, manufacturing, services, retailing, utilities & energy and general investments. That is diversification at its best, done by the best. BRK-B is a BUY.
Visa Inc. (V) gained 0.58% last week. Visa, Inc. competitor Discover Financial Services (DFS) reported earnings yesterday, beating analysts’ estimates, and revealing loan portfolio expansion, as well as declining negative-debt losses. This bodes well for Visa’s upcoming May 1 report, due after markets close. V is a BUY.
PowerShares Global Listed Private Equity Portfolio ETF (PSP) ended the week nearly flat. Although PSP dipped slightly below its 50-day MA last week, PSP recovered quickly and closed above our Buy/Hold line. PSP’s largest holding is Onex Corporation, a successful, 28-year-old private equity firm with $49 billion in acquisitions. Up more than 32% over the past year, Onex has been a big winner for your position in PSP. PSP is a BUY.
WisdomTree Japan SmallCap Dividend ETF (DFJ) added 3.33%. After a bit of consolidation trading over the previous weeks, DFJ powered higher last week and appears ready to make its next leg up. Shooting up to a new 52-week high yesterday, DFJ is a BUY.
Vanguard Global ex-U.S. Real Estate Index Fund (VNQI) gained 0.72% over the past five trading days. VNQI is making a strong attempt to break through the $60.00 resistance level, and it appears likely to do so any day now. Back in the United States, single-family home sales rose again last month, posting an 18.5% increase in sales year-over-year. In fact, sales have been so brisk as of late that inventories are now at record lows — a good “problem” to have. VNQI is a BUY.
S&P Global Timber & Forestry Index Fund (WOOD) rose 0.66% last week. WOOD is showing signs of life once again as it spent the past week making a convincing turn from its 100-day MA. This is likely a good point to add to your position. Breaking above its 50-day MA yesterday, WOOD is back to a BUY.
Wisdom Tree Japan Hedged Equity (DXJ), your second “Japanese recovery” position, gained 2.83% over the past week. Moving in lock step with your DFJ holding, DXJ powered higher to a new 52-week high yesterday. The currency-hedging that DXJ employs has been working strongly in your favor since you opened this position. With the Japanese yen currently re-testing recent lows, a further break down will likely translate to more currency-related gains for DXJ. DXJ is a BUY.
WisdomTree Emerging Markets SmallCap Dividend Index (DGS) gained 1.17% as it moved steadily towards its $52.00 resistance level and 52-week high. This turbo-charged bet on the recovery in emerging markets uses the power of small-caps to achieve greater returns. DGS is a BUY.
Silver Bay Realty Trust (SBY) dipped 1.70%. SBY’s price action leveled off last week as the bulls and bears finally appear to be butting heads with equal strength. This play on the housing recovery seeks to purchase and renovate single-family homes, lease the properties, and then return all income to shareholders. SBY is just below the 50-day MA and is a HOLD.
iShares MSCI Ireland Capped Investable Market Index (EIRL) rose 0.64%. Ireland and Greece were the poster children of the economic problems Europe faced over recent years. However, it seems the “luck o’ the Irish” may be working for Ireland once again (as well as for you), as the fund’s recovery back to economic prosperity slowly continues to build steam. EIRL is a BUY.
Two Harbors (TWO) fell 1.76% last week. TWO will report earnings on May 7, after markets close. Analysts estimate $0.32 earnings per share (EPS). This is four cents above last quarter’s reported $0.28 EPS figure. Trading under its 50-day MA, TWO is a HOLD.
