Despite the normally positive seasonality of December, the past five trading days have been the worst week for U.S. stock markets since late August. Both the Dow Jones and the S&P 500 fell 1.65%. Global markets tumbled in sympathy with the MCSI Emerging Markets Index by dropping 2.36%.
The sole bright spot in your Bull Market Alert portfolio last week was 3D printing pioneer Stratasys (SSYS), which gained 2.56%.
Yet I think this is as good a time to go against the grain as any. And here’s why…
With most of your Bull Market Alert positions technically oversold, and the Fed likely to hold off on tapering this week, I am recommending that you bet on a year-end bounce in the markets and place some options bets related to your current holdings.
- Buy the Bank of Ireland (IRE) April $15 call options (IRE140419C00015000);
- BuyProShares Ultra Russell 2000 (UWM) April $78 call options (UWM140419C00078000); and
- Buy Google Inc. (GOOG) February $1080 call options (GOOG140222C01080000).
I’m looking for these options to be short-term bets that you will exit for rapid gains — as you did for quick one-week 46.15% and 36.80% gains in the Bank of Ireland (IRE) April $15 call options and ProShares Ultra Russell 2000 (UWM) January $80 call options, respectively, that I recommended on Nov. 25.
The big news this week, of course, is the Federal Open Market Committee (FOMC) meeting scheduled on Dec. 17 and 18. The market is worried that the Fed might begin to taper the pace of its $85 billion monthly bond-buying program.
Echoing the view of Goldman Sachs, I believe the Fed will hold off from tapering until next year for three reasons.
First, although the trend rate of U.S. payroll growth rose to the 200,000 per month level, headline inflation has fallen near historical low levels, and below the Fed’s 2% target. That gives the Fed breathing room to continue to buy bonds.
Second, the Fed has explicitly announced that interest rates would remain near zero until unemployment fell to at least 6.5%. It is now only 7%.
Third, any taper would come as a hawkish surprise to markets. With mortgage rates and the 10-year yield up 30 basis points since the October meeting, interest rates already are on the rise. The Fed wants to avoid another negative market reaction like May 22.
All of this, combined with oversold markets and strong seasonality, bodes well for the market between now and the end of the year. And your Bull Market Alert portfolio — along with today’s option bets — is well positioned to profit.
Portfolio Update
Bank of Ireland (IRE) ended the week flat. Ireland became the first euro-zone country to exit its bailout program on Sunday. Ireland’s 10-year note yields show just how far Ireland has come to date. At the height of the nation’s fiscal crisis, Ireland borrowed at rates near 15%. Ireland’s 10-year note yields are under 4% now. As the country’s finance minister noted, Ireland is currently borrowing at rates lower than when the country had a credit rating of AAA. IRE is a BUY.
Google Inc. (GOOG) dipped 0.85%. Janney Capital Markets (JCM) raised its Google price target to $1,220 last week — a 15% jump from Friday’s close. The catalyst for JCM’s upbeat rating is the growth of Google’s “Google Shopping” service. With more than one billion product offerings just a mouse-click away, and visitor traffic more than doubling so far this shopping season, JCM sees Google Shopping as a growing disruptive force in the e-commerce arena. GOOG is a BUY.
AutoNation (AN) dipped 1.07% as it bounced slightly from its 50-day moving average (MA) last week. AutoNation’s recently cited strong year-over-year increases in all of its sales segments. Domestic sales rose 15%; its imports segment gained 11%; luxury added 13%; and U.S. sales as a whole increased 9%. AN is a BUY.
iShares MSCI Spain Capped Index (EWP) dipped 0.88% over the past five trading days. EWP’s chart displays a positive pattern at the $36.13 price level. It bounced from this price nearly one month ago and just recently revisited $36.13. An upwards move from here could bring a lasting bullish trend. EWP is a HOLD.
Trina Solar Limited (TSL) fell 4.38%. TSL’s CEO recently disclosed that his company was exempt from specific duties imposed by the European Union on the import of solar panels to European countries. This will help maintain profit margin on panels sent to Europe. The CEO also expected many years of stable growth in European markets and stressed the importance of these markets in TSL’s future. TSL remains a HOLD.
Stratasys (SSYS) gained 2.56% last week. SSYS rose last week on positive news concerning an agreement that will expand Stratasys’ reach into the lucrative South Korean market. SSYS is a BUY.
db X-trackers Harvest China ETF (ASHR) lost 1.95% last week. Nevertheless, China’s outlook for 2014 remains positive, and this bet on domestic Chinese shares should move higher. ASHR is a BUY.
ProShares Ultra Russell2000 (UWM) fell 4.21% as it pulled back to its 50-day MA. UWM has dipped to the 50-day MA ten times in 2014. Although each dip normally results in a breach below the 50-day MA, this dip has never persisted. In fact, each occurrence has resulted in a multi-week run higher. With the current pullback, UWM is primed for more of the same behavior. UWM is a BUY.
Apple Inc. (AAPL) gave back 1.00% in its first week in your Bull Market Alert portfolio. Wall Street collectively has been more upbeat on Apple lately. Canaccord Genuity is the latest firm to join the bulls, increasing its price target on Apple to $600. That represents an 8.25% upside move from Friday’s close. The firm cited high expectations for Apple’s latest China Mobile development as a key upside catalyst. AAPL 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.
