Global Markets Steady Ahead of a Q4 Rebound

Negative headlines notwithstanding, global stock markets steadied over the holiday-shortened week. The Dow Jones Industrial average rose 0.39%, while the S&P 500 was up 0.57%. The MCSI Emerging Markets Index recovered surprisingly strongly, rising 2.42%.

Most of your Alpha Investor Letter positions rose more than 1%. Your biggest gainers included WisdomTree Japan Hedged Equity (DXJ), up 2.92%; the Market Vectors Biotech ETF (BBH), up 2.68%; and the iShares MSCI Singapore Small Cap Fund (EWSS), up 1.91%.

In addition, Visa Inc. (V) was up 1.64%, First Trust US IPO Index (FPX) climbed 1.58% and Vanguard Global ex-US Real Estate ETF (VNQI) recovered 1.57%.

PowerShares Global Listed Private Eq (PSP) also moved back above its 50-day moving average and once again is a buy.

So what is the current state of play?

First, it’s worth keeping the current market pullback in perspective. Despite all of the current negative headlines, the S&P 500 has been basically flat between Memorial Day and Labor Day. And that’s been during what is seasonally the weakest time of the year. Overall, the market has held up quite well.

Second, the U.S. stock market is oversold, both technically and in terms of market sentiment. Technically, the current pullback is one of the best times of the year to re-enter the market.
In addition, most sentiment-related studies I look at foretell choppy market performance in the shorter term, then very good performance six months and beyond.

Finally, the coming days’ headlines will be chock full of negatives about Syria and about the impact of the Fed’s tapering.

Yet, I am broadly optimistic about the prospects for market gains over next four months.
The U.S. economy is steadily expanding. I don’t expect the United States will be getting involved in Syria in any major way. And although September tends to be choppy, we are also entering Q4 — traditionally the strongest time of the year for the stock market.

Portfolio Update

Berkshire Hathaway (BRK-B) gained 0.48% last week. Berkshire Hathaway’s stock price leveled off last week, after enduring a pullback that has been in-line with the broader markets. However, you can take comfort in the fact that as of last Friday, short interest in BRK-B was an unprecedented 0.0%. No one dares to bet against Warren Buffett. BRK-B is a HOLD.

Visa Inc. (V) rose 1.64% over the past five trading days. Your position in Visa is up over 80% since my recommendation nearly two years ago — and this gain has occurred in spite of the most anemic economic recovery in the history of the United States. With all signs indicating that the recovery is gaining steam, consumer spending can only improve, giving Visa a substantial tailwind to help push it higher. V is a HOLD.

iShares MSCI Ireland Capped Investable Market Index (EIRL) added 1.31% last week, making the recent Syria-induced dip a wash. Ireland remains in recovery mode and will head higher. Although September is often a difficult month, any significant dip should serve as a good buying opportunity. EIRL is a BUY.

iShares MSCI Singapore Small Cap Fund (EWSS) gained 1.91% as EWSS took a convincing bounce from its $27.50 support level last week — a robust level last visited in June. This is a positive sign moving forward. With one of the strongest economies in the region, Singapore remains the best bet among the “Asian Tigers.” EWSS is a HOLD.

Google Inc. (GOOG) added 1.20% for the week. Google announced today that over one billion Android devices have been activated to date, and activations continue at over 1.5 million devices each day. Just stop to think about the size of those numbers for a minute, and then imagine a company that can push paid advertising to all those sets of eyes. And these astounding figures do not include the billions of non-Android personal computer users in the world using Google’s products on their screens every day. Back to its well defined $850 price level, GOOG is a HOLD.

WisdomTree Japan Hedged Equity (DXJ) added 2.92%. The “hedged” in DXJ’s fund name implies that DXJ can be sensitive to not only economic changes in Japan, but also changes to Japan’s currency. With the yen seeing a bit of an uptick recently, this has put some pressure on DXJ. However, Japan’s economic recovery story remains intact, and so does your position in DXJ. DXJ is a HOLD.

Guggenheim Spin-Off (CSD) gained 0.98% over the previous week. Most spin-offs beat their parent companies by an average of 22% in their first year after being spun-off. Flirting with its 50-day moving average, CSD is a HOLD.

PowerShares Buyback Achievers (PKW) added 0.94% last week. PKW came to rest directly above the 50-day moving average last week, and is holding up well. PKW remains a BUY.

First Trust US IPO Index (FPX) rose 1.58%. In a textbook show of strength, investors have been buying FPX “on the dips” recently. Each time FPX has moved lower over the past few weeks, buyers have stepped in and bought FPX on record trading volume at levels recorded only twice before. With FPX’s 52-week high closing fast, it appears that this position may push through this $40 resistance level to continue on its next leg upwards. FPX remains a BUY.

WisdomTree Japan SmallCap Dividend (DFJ) dipped 1.17% over the previous four trading days. DFJ has also taken a hit from recent news relating to the pending military actions surrounding Syria. However, the negativity has managed to push DFJ to a key trading level — its 200-day moving average. Taking a historical look at DFJ’s chart reveals that DFJ has traded above this line since December of 2012, with the exception of a single touch in early June 2013 that resulted in a healthy bounce. DFJ is a HOLD.

Vanguard Global ex-US Real Estate ETF (VNQI) rose 1.57%. The real estate sector has been in a correction over the past few months, and VNQI has suffered accordingly. VNQI’s U.S.-based real estate cousin, VNQ, has pulled back 13% from its recent high. However, your international-based real estate ETF has fared much better, falling just 4.65% during the same period. VNQI is a HOLD.

iShares S&P Global Timber & Forestry Idx (WOOD) ended the week nearly flat. Not surprisingly, WOOD has dipped alongside the pullback in real estate. Although WOOD moved above the 50-day moving average twice last week in an attempt to move higher, WOOD is currently a HOLD.

PowerShares Global Listed Private Eq (PSP) gained 1.24% to move above its 50-day moving average. Private equity (PI) firms invest directly in companies and bring additional value-added services to the firms in which they invest. They will also typically provide strategic planning and management advice in an effort to maximize the value of their investments. PSP is now a BUY.

Market Vectors Biotech ETF (BBH) added 2.68% last week. The light of the biotech sector shined through the storm clouds last week, making your bet on BBH a bright spot in an otherwise gloomy market. No matter how bad the negative headlines from the Middle East, people will still need life-saving drugs. This gives biotech an edge over many investment classes held hostage to world events. BBH is a BUY.

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