Riding the Market Roller Coaster

Nicholas Vardy

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

It has been a roller coaster ride for global stock markets over the past week — with big pullbacks followed by big bounces.

The Dow Jones dropped 2.96%, while S&P 500 ended the week 2.78% lower. Emerging markets were hit with a big sell-off, with MCSI Emerging Markets Index tumbling 3.52%.

Icahn Enterprises, L.P. (IEP) was a surprising big gainer in your Alpha Investor Letter portfolio, rising 2.41%.

Many of your positions fell below their 50-day moving averages and moved to a HOLD. These include the WisdomTree Japan Hedged Equity (DXJ), Guggenheim Spin-Off (CSD), PowerShares Buyback Achievers (PKW), First Trust US IPO Index (FPX), WisdomTree Japan SmallCap Dividend (DFJ), iShares S&P Global Timber & Forestry Index (WOOD), Global X Guru Index ETF (GURU) and Las Vegas Sands Corp. (LVS).

Financial markets are clearly nervous, as investors have turned from extremely bullish to extremely bearish since the start of January.

After a sharp sell-off at the end of last week, Asian markets rallied overnight after Turkey hiked its interest rates, hoping that the drastic action would short-circuit a vicious cycle of selling in emerging markets. The U.S. Federal Reserve’s expected decision to trim its asset-buying program by another $10 billion a month at its policy meeting this week may put yet more pressure on the markets.

Certainly, most of the sentiment indicators I look at still predict the pullback to continue. After all, the S&P 500 is a mere 3% below its all-time high. A genuine correction of 10% would take the S&P 500 down to about 1,660 — which seems a long way down from yesterday’s close of 1,792. Much of this depends on whether Mr. Market decides to talk himself into another emerging markets crisis or not. Fortunately, you have little exposure to this asset class at the moment — though it is almost impossible to avoid the “baby out with the bathwater” type behavior of investors during times like this. On balance, I expect a volatile next few weeks until markets settle on a direction.

You have stops in place in all of your Alpha Investor Letter positions to protect your downside. And even if you do get stopped out of some positions, I will keep many on a “watch” list for future re-entry — a strategy we have profitably utilized in the past.

Otherwise, I am on my way out the door to catch a 10-hour flight from London to Orlando, Fla. I will be giving all of my presentations tomorrow, Jan. 30, and you can see my schedule now. Also, don’t miss my private meeting with subscribers at 1:00 PM on Friday in room St. George 108. I encourage you to sign up for my private meeting today. I look forward to seeing you there.

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Portfolio Update

Berkshire Hathaway (BRK-B) lost 2.73% last week, in line with the S&P 500’s 2.78% pullback for the week. However, looking back at Berkshire Hathaway’s investment history from 1965, Warren Buffett has been able to produce a 19.7% compounded annual gain, trouncing the S&P 500’s 9.4% annual rate. And, Mr. Buffett has managed this remarkable feat while taking less risk than the overall market. BRK-B is a HOLD.

Visa Inc. (V) gave back 4.73% during last week’s market mini-correction. With earnings just one day away, and most analysts positive on Visa’s earnings outlook, this dip may be a buying opportunity. Sandler O’Neill also initiated coverage on V last Monday at a “Buy” rating and set a price target of $250 — a 13% jump from yesterday’s closing price. V is a BUY.

iShares MSCI Ireland Capped Investable Market Index (EIRL) dipped 1.82% on heavy volume last week to touch the 50-day moving average (MA). However, buyers appeared to rush back in yesterday and push the stock back up above the 50-day MA. EIRL has managed to stay above this mark in a nearly unbroken run going back to September 2012. The gains are likely to continue. EIRL is a BUY.

Google Inc. (GOOG) fell 3.50%, charting a pattern over the past week that was very similar to EIRL’s. I recently highlighted Google’s acquisition of robotics company Boston Dynamics, a company that produces advanced robotic technology. News emerged yesterday that Google recently acquired artificial intelligence company DeepMind Technologies based here in the United Kingdom. This all adds to the repertoire of the richest and most innovative companies on the planet, bringing together artificial intelligence, robotics and billions of dollars. Let’s hope Google’s “Don’t Be Evil” motto is more than just a catchy marketing slogan. Google reports earnings tomorrow. GOOG is a BUY.

WisdomTree Japan Hedged Equity (DXJ) lost 4.88%. Japan’s Prime Minister Shinzo Abe attended the high-profile World Economic Forum in the exclusive vacation mecca of Davos, Switzerland last week. His take on Japan was quite positive during his keynote speech, declaring that “Japan is back!” DXJ’s pullback brought it down to the 200-day MA, a price level where many stocks find good support. DXJ changed to a HOLD.

Guggenheim Spin-Off (CSD) was unable to escape the broad market pullback last week and fell 3.25%. CSD also moved below the 50-day MA to become a HOLD.

PowerShares Buyback Achievers (PKW) followed in CSD’s footsteps to give back 2.72% and fall below the 50-day MA. PKW may recover quite quickly as any significant pullback in the broader markets will create cheaper stock prices — a move that may spur companies to accelerate buybacks and reap the benefits of lower stock prices. PKW is now a HOLD.

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First Trust US IPO Index (FPX) ended the week down 2.85%. FPX is the third member in the “Smart Beta” triad in your Alpha Investor Letter portfolio. As markets stabilize over the coming weeks, I expect these “Smart Beta” positions to rise until the typical summer slowdown. FPX is just pennies under the 50-day MA and is now a HOLD.

WisdomTree Japan SmallCap Dividend (DFJ) lost 3.36%. DFJ came within $0.50 of its 52-week high last week before pulling back with the broader markets. DFJ also dipped below the 50-day MA to touch the 200-day MA. However, DFJ has maintained its price above the 200-day MA since late 2012, managing strong bounces each of the four subsequent times it has touched this level. DFJ is a HOLD for the moment.

Vanguard Global ex-US Real Estate ETF (VNQI) gave back just 1.46% last week. For all of the carnage seen in the global markets over the past week, global real estate has shown impressive resilience. VNQI is now back to the $52.00 support level — a level it last bounced from in September 2013. Add to this the typically strong spring buying season on the horizon, and global real estate could perform quite well going into 2014. VNQI remains a HOLD.

iShares S&P Global Timber & Forestry Index (WOOD) fell 2.47%. Although WOOD lost ground last week commensurate with the market pullback, it ended the week just one cent shy of the 50-day MA. This moves WOOD to a HOLD for the moment.

Market Vectors Biotech ETF (BBH) dipped 2.17% after pulling back from its 52-week high. This is likely nearing a good buy point for more biotech sector profits. BBH remains a BUY.

ProShares Ultra-Short 20+ Year Treasury (TBT) fell 2.86% last week. Many market watchers are expecting the Federal Reserve to announce a continuation of its reduction in bond purchases today. These reductions should remain evenly split between treasuries and mortgage bonds. “Tapering” of this sort is one of the strongest cases for an increase in TBT’s price level and is expected to last throughout the year. TBT is a BUY.

Icahn Enterprises, L.P. (IEP) managed to gain 2.41% despite the market’s recent plunge. IEP’s price action has leveled off considerably over the past weeks, likely signaling calmer days ahead. Carl Icahn also added to his considerable stake in Apple recently, buying up another $500 million worth of stock during the recent earnings-related pullback. IEP is a HOLD.

Global X Guru Index ETF (GURU) fell 3.18%. Even the “Masters of the Universe” could not escape the gravitational pull of the dip felt around the world last week. GURU also fell below the 50-day MA to become a HOLD.

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The Blackstone Group (BX) lost 5.50%, pulling back to the 50-day MA in a similar fashion to several other portfolio positions. However, BX quickly made a stand to hold above the 50-day MA. Blackstone Senior Managing Director John Studzinski made comments last week from Davos that his company expects 2014 to be a strong year for mergers and acquisitions — and that Blackstone is well positioned to capitalize on this future trend (no pun intended). Studzinski also believes that the United States will see a 3% gain in gross domestic product (GDP) this year. BX reports earnings tomorrow. BX remains a BUY.

Las Vegas Sands Corp. (LVS) fell 8.25% last week to become the worst casualty in your portfolio of the market correction. However, LVS will report earnings today after the markets close, and consensus estimates are calling for LVS to beat “The Street” by one cent. LVS is now a HOLD.

Latest Special Reports

In addition, as a courtesy, read my new special report, Top 4 Keys to Profiting in the Q4/Q1 Wildfire Rally, which includes time-critical information you can use  as 2014 begins. Also, take a look at the latest 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. These special reports and others are accessible FREE on my website.

Upcoming Appearances

  • World Money Show, Jan. 29-Feb. 1, Gaylord Palm Resort, Orlando: Join Ann Coulter, Dr. Mark Skousen, Chris Versace, Dennis Gartman, other top investment experts and me. Go to NicholasVardy.WorldMoneyShow.com to sign up free as my guest or call the Money Show at 1-800/970-4355 and mention priority code 034199. Be sure to sign up for my private, subscribers-only meeting if you plan to attend The World MoneyShow Orlando. The room for my private meeting is St. George 108, and my gathering is scheduled for Friday, Jan. 31, beginning at 1 p.m. I encourage you to sign up for my private meeting today.
  • I will be meeting with current and prospective Global Guru Capital clients at the World Money Show in Orlando on Friday, Jan. 31 and Saturday, Feb. 1. If you would like to set up a meeting with me personally, please drop my assistant a note at sarah@globalgurucapital.com to set up a time. NOTE: Global Guru Capital is a Securities and Exchange Commission-registered investment adviser, and is not affiliated with Eagle Publishing.

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