Locking in Gains, Looking for Pullback, Anticipating a Big Bounce

It was a flattish week for global stock markets last week with the Dow Jones up 0.29% and the S&P 500 rising 0.11%. The MCSI Emerging Markets Index ended the week 0.63% lower.

The story of the week in your Bull Market Alert portfolio was Gentherm (THRM), which soared 13.04% on better-than-expected earnings. In Friday’s special alert, I recommended that you tighten your stop to $22.55 to lock in at least a 20% gain in the stock.

Today, I’m also recommending that you raise your stop in Google (GOOG) to $999.25 to lock in 15% gains in the stock.

You were also stopped out of Krispy Kreme Donuts (KKD) for a gain of 20.08%.

Technically, it is an interesting — and a contradictory — time for your Bull Market Alert portfolio.

As I look at my favorite technical charts, pullbacks in Wellpoint (WLP), Auto Nation (AN), as well as both emerging-market picks Trina Solar Limited (TSL) and MercadoLibre (MELI), have made these positions oversold and due for a bounce. That bounce may have already started as each of these stocks has recovered from lows they hit during the middle of last week.

At the same time, the overall U.S. stock market is overbought and equally due for at least a short-term correction. And if the U.S. market corrects, the rest of the world tends to go down with it. That’s also why I put such a tight stop on Krispy Kreme (KKD), Geotherm (THRM) and, today, Google (GOOG). You don’t want to give back the quick 15%-20% gains you’ve made on any of these stocks.

That contradictory state of affairs — oversold on one hand, and overbought on the other — makes it a risky week to take a new position in the market. So you’re better off keeping your financial powder dry for better opportunities in the weeks ahead.

Overall, I expect both the U.S. and the international stock markets to have a strong remainder of the year — after a short pullback over the next week or two.

I also expect to make some new option recommendations on some of your current positions like Bank of Ireland (IRE) and Google (GOOG) once that correction occurs — as well as provide a new recommendation next week.

Portfolio Update

Bank of Ireland (IRE) fell 2.77% last week. The Bank of Ireland inched closer last week to announcing its plans on buying back the $2.45 billion in stock that the Irish government bought as “bailout funding.” IRE appears to be readying for this transaction. Under the terms of the bailout, if IRE fails to repay the funds by March 2014, the cost of the buyback will increase by 25%. IRE is a BUY.

WellPoint, Inc. (WLP) rose 1.50%, reclaiming the ground it lost on its recent earnings report. Recall that third-quarter results were driven primarily by lower-than-anticipated medical cost experience, favorable membership and revenue, and supported by strong operating cash flow generation. Trading below its 50-day moving average, WLP remains a HOLD.

Gentherm (THRM) soared 13.04% after a very positive earnings report. Gentherm reported third-quarter earnings-per-share last Thursday of $0.25 vs. an estimated $0.21. Revenue came in at $171.20 million vs. an estimated $154.57 million. Gentherm’s Chief Executive Officer Daniel Coker gave strong guidance for the company as well, citing growth and increased market share, as well as improved operating and cost efficiencies. THRM is a BUY.

Google Inc. (GOOG) continued higher, adding 1.17% and hitting a new all-time high of $1,041 before pulling back slightly. Google had two big announcements last week, giving its users two new toys to play with, even before Christmas arrives. Google released its new Nexus 5 smartphone, delivering mobile users one of the most powerful phones to date, and premiering Google’s new Android 4.4 “Kit Kat” mobile operating system. Google’s “Nexus” product line comes with no third-party user interface — giving users a pure Google experience. Internet radio giant Pandora also released support for Google’s $35.00 Chromecast device last week, giving users the ability to send a high-quality, customizable Internet Radio signal wirelessly to their home theater sound systems. This allows users to control the music experience at their home via the familiar, mobile, and user-friendly interface of nearly any mobile device — Apple products included. Raise your stop to $999.25 to lock in a 15% gain in the stock. GOOG is a BUY.

AutoNation (AN) dipped 1.57% over the past five trading days. AutoNation is not like traditional new car dealerships — and this is its strength. The profit margin on new vehicle sales is minimal compared to what AutoNation sees on its core profit centers — used cars, auto financing and service & parts. AutoNation focuses on these higher-margin items, giving them an edge over many competitors in the automobile space. AN is a HOLD.

iShares MSCI Spain Capped Index (EWP) gave back 1.52%. Spain’s Economy Minister Luis de Guindos reported last week that his country has made robust economic gains recently that are enough to cover Spain’s recent budget cuts to balance its budget deficits. A classic “turnaround play” on macro level, EWP is a BUY.

MercadoLibre (MELI) closed down 3.81% over the last five trading days. More than $1.7 billion worth of sales moved through MELI in just the last quarter. And, MELI may very well be able to grow this traffic significantly as many of its primary operating regions are still in the early innings of their own mobile Internet boom. MELI will report earnings on Nov. 5, after markets close. MELI is a BUY.

Trina Solar Limited (TSL) fell 3.71% last week. Deutsche Bank continues to be bullish on the solar sector, calling the current weakness in the solar industry a buying opportunity. Positive industry third-quarter earnings results are expected to drive solar stock prices higher. TSL reports earnings on Nov. 19, before markets open. TSL is a BUY.

Latest Special Report

As a courtesy, I want to bring to your attention my latest special report, the newly updated version of The Top 12 Stocks You Should Buy Right Now, which features three of my top investment recommendations, as well as bonus picks from each of my fellow investment newsletter editors at Eagle.

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