Celebrating Big Gains — With a Hint of Short-Term Caution

Nicholas Vardy

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

Overall, it was a strong week for your Alpha Investor Letter portfolio, with the S&P 500 up 3.33% and the NASDAQ rising 3.57%. Global markets also performed well, with the MCSI Emerging Markets Index ending the week 2.33% higher.

Big gainers in your Alpha Investor Letter portfolio included Google Inc. (GOOG), which soared 14.17%. Last week’s recommendation, Icahn Enterprises, L.P. (IEP), jumped 6.14% in your portfolio. The Guggenheim Spin-Off (CSD) shot up 6.42%; the PowerShares Global Listed Private Eq (PSP) jumped 5.38%; and the Market Vectors Biotech ETF (BBH) gained 4.75%.

Two of your positions — the iShares MSCI Singapore Small Cap Fund (EWSS) and Market Vectors Biotech ETF (BBH) crossed their 50-day moving average (MA) and moved back to “BUY.”

With that, all positions in your current Alpha Investor Letter portfolio are BUYS, with the exception of ProShares Ultra-Short 20+ Year Treasury (TBT).

With the U.S. debt default averted at the last minute, much of pall that has weighed on the U.S. stock market has been lifted.

As of today, I see two seemingly contradictory dynamics here.

On the one hand, as I look at my favorite technical indicators — stochastics, bollinger bands and the like — I see a U.S. stock market that is now overbought and due for a correction. In addition, many “softer” sentiment indicators confirm that the market has gotten a bit frothy.

On the other, we are now fully in Q4, which is traditionally the strongest quarter of the year. That means that I believe that we are not near the highs for the year — and that a strategy of “buying on the dips” is not a bad one.

Finally, I want to highlight a surprising change in the leadership among global stock markets.

Up until about two weeks ago, it was Ireland, the United States and Japan that had been vying for the title of top-performing market of 2013, with Ireland taking the lead in the past few months. You, of course, have positions in all of these markets through the iShares MSCI Ireland Capped Investable Market Index (EIRL), the Wisdom Tree Japan Hedged Equity (DXJ) and WisdomTree Japan SmallCap Dividend (DFJ), in addition to a slew of big bets on the United States.

Since then, however, a couple of Ireland’s fellow crisis-ridden “PIIGS” — Greece and Spain — have leapfrogged the United States and Japan.

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So as it stands now, it is three of Europe’s crisis-ridden economies — Ireland, Greece and Spain — that are the top-performing stock markets of the world so far in 2013.

Chalk up another one for contrarian investing…

Portfolio Update

Berkshire Hathaway (BRK-B) gained 2.49% last week. “Tiger 21,” a large group of affluent investors based in New York, conducts an annual member survey looking for their top stock picks. Apple has won the number one spot the last two years running. Tiger 21 published its most recent survey on Monday, revealing the number one pick for this year as Mr. Warren Buffett’s Berkshire Hathaway. BRK-B is a BUY.

Visa Inc. (V) added 4.50% over the past five trading days. Credit card competitor Citi reported excellent earnings last week, showing improved purchasing levels for the second quarter in a row. This result likely sheds a positive light on Visa’s upcoming earnings report. Visa will report earnings on Oct. 30, after markets close. V is a BUY.

iShares MSCI Ireland Capped Investable Market Index (EIRL) rose 4.06%. With U.S. indexes hitting new highs and trading at the top of their ranges, and appearing overbought, strong overseas powerhouses like Ireland are still in the early stage of their economic recoveries. Given this, gains are much more likely and pullbacks are opportunities to add to your position. EIRL is a BUY.

iShares MSCI Singapore Small Cap Fund (EWSS) gained 2.42% last week. A scan of the yields of all exchange-traded funds (ETFs) reveals that EWSS comes in at an astonishing second place, sporting a whopping 20.38% yield. This dividend supercharges your gains in Singapore and provides a considerable amount of downside protection. EWSS popped above its 50-day moving average (MA) last week and is now a BUY.

Google Inc. (GOOG) launched 14.17%. The big jump in your brokerage account balance last Friday was not a computer glitch — that was just Google reporting earnings and finally joining the “$1,000 club.” Google’s earnings report confirmed that it excelled in nearly every metric that an analyst or investor would care about — and by large margins. The only exception was a measured loss in its newly acquired Motorola Mobility business — a venture that I expect will soon be profitable, given the innovation found in Google’s latest Moto X device. The stellar earnings figures proved beyond the shadow of a doubt that Google is a powerhouse in nearly all facets of its business and is growing stronger. Google has become, as I have called it, “the General Electric” of today. GOOG is a BUY.

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WisdomTree Japan Hedged Equity (DXJ) added 1.74% last week. Looking at the total assets-under-management (AUM) for all funds that employ foreign currency hedging, DXJ rises to the top of the heap with a massive $10.9 billion in AUM. DXJ is a BUY.

Guggenheim Spin-Off (CSD) shot up 6.42% over the past five trading days. CSD turned in its best week of the year last week, shooting upwards to hit a new 52-week high and experiencing the highest volumes the ETF has ever recorded. This is the second straight week of stellar gains for CSD, since dipping to touch its 50-day MA. CSD remains a BUY.

PowerShares Buyback Achievers (PKW) added 2.86%. PKW rose steadily last week to break through its current resistance level and attain a new 52-week high. I highlighted some of Carl Icahn’s successes in the November issue of The Alpha Investor Letter and touched on Mr. Icahn’s push for Apple to accelerate its own stock buyback from $100 billion to $150 billion. Buying back stock stands as one of the more proactive and popular methods to increase a company’s stock price, as evidenced by PKW’s excellent 2013 gains. PKW is a BUY.

First Trust US IPO Index (FPX) gained 4.12%. FPX traded in lockstep with its “Buffett-Beating” brethren, repeating the 50-day MA bounce and new 52-week high. FPX has harnessed excellent gains for investors over its seven-year history, trouncing the S&P 500 Index by nearly triple. FPX is a BUY.

WisdomTree Japan SmallCap Dividend (DFJ) gained 2.95%. According to a Wall Street Journal article published last week, ETFs and mutual funds across the board are quite underweight in their exposure to Japan’s small-cap sector. This puts you in a great position once demand for this asset class really ignites. DFJ is a BUY.

Vanguard Global ex-US Real Estate ETF (VNQI) gained 3.09% last week. U.S. and global-based real estate has taken quite a breather recently. However, VNQI’s trading action over the past few weeks reflects a positive turn as of late. A recent, and second move upwards from the significant 200-day MA, coupled with a push through its $58.00 resistance level, shows that the real estate sector may be coming back to life very soon. VNQI is a BUY.

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iShares S&P Global Timber & Forestry Index (WOOD) rose 3.13% and hit a new 52-week high. WOOD is also reflecting the positive sentiment in the markets since the government shutdown ceased. In particular, the shutdown forced logging operations to an immediate halt after the U.S. Forest Service and U.S. Bureau of Land Management temporarily closed down, depressing WOOD’s stock price. WOOD is a BUY.

PowerShares Global Listed Private Equity (PSP) jumped 5.38%. PSP also joined the “new 52-week high” club last week, after taking a recent bounce from the 200-day MA. The recent threat of higher interest rates spooked private equity investors last month. However, recent weeks have brought a significant cool-down back to rates and PSP has responded quite positively. PSP is a BUY.

Market Vectors Biotech ETF (BBH) gained 4.75%. The boom in biotech continued last week after the recent government shutdown-induced BBH pullback produced a very good opportunity to invest more capital in the drug makers at a cheaper price. BBH is now a BUY.

ProShares Ultra-Short 20+ Year Treasury (TBT) fell 6.19% over the past week, as the threat of interest rate rises has receded. And TBT has suffered accordingly. TBT is a HOLD.

Icahn Enterprises, L.P. (IEP) soared 6.14% last week. News surfaced yesterday that Carl Icahn recently cashed in a combined total of three million shares of his Netflix position, booking nearly $800 million in profits. This should reflect quite positively in IEP’s upcoming earnings report. Mr. Icahn still owns 4.5% of Netflix. IEP is expected to report earnings on Nov. 7, before markets open. IEP is a BUY.

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