Holding on Tight in a ‘Sloppy’ Market

Nicholas Vardy

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

It was a difficult and volatile week in the U.S. markets last week, as the Dow Jones fell 3.03% and the S&P 500 pulled back 2.08%. The MCSI Emerging Markets Index actually held up better than U.S. markets by ending the week down only 1.23%.

Big gainers in your Alpha Investor Letter portfolio included the Blackstone Group (BX), which rose 2.60%, and Google Inc. (GOOG), which gained 1.35%, both on strong earnings.

Two positions — Visa Inc. (V) and the iShares MSCI Ireland Capped Investable Market Index (EIRL) — fell below their 50-day moving averages and moved to a hold.

In addition, both the PowerShares Buyback Achievers (PKW) and Icahn Enterprises, L.P. (IEP) hit their stops. I am putting these on our watch list, as I expect both of these positions to bounce back once the market settles.

As I reviewed the charts of each of your Alpha Investor Letter positions this morning, the word “sloppy” kept coming into my mind. Over the past two weeks, volatility has increased substantially. Your positions will be up sharply one day and down sharply the next. Stocks are having a tough time finding direction.

From a purely technical standpoint, every Alpha Investor Letter position is strongly oversold and due for a bounce. My biggest concern is that the market has fallen through some key technical levels which have made the current pullback more painful than usual. And as always, investors are throwing out “the baby with the bathwater.” At the same time, it’s worth recalling that the S&P 500 is still just 5% below its record high. In short, I believe the current correction is still best described as one of Mr. Market’s occasional mood swings, and it will pass as it inevitably does.

My biggest challenge is how to handle the stops on your current Alpha Investor Letter positions. As mentioned above, this week you were stopped out of both PowerShares Buyback Achievers (PKW) and Icahn Enterprises, L.P. (IEP) for some nice gains. At the same time, I don’t see the fundamentals for either position deteriorating, and I continue to hold both positions for investors in my various investment programs at my firm, Global Guru Capital.

Finally, it was good to meet with so many of you personally at the Money Show in Orlando last week. It is always terrific to hear your personal stories, as well as your experiences with The Alpha Investor Letter. I also wanted to give you the opportunity to download a copy of my Money Show presentation “Seven Top Investment Strategies You Can Invest in at the Click of a Mouse”.

Finally, I will be doing an encore presentation of the talk I gave at the Investment Masters Symposium in Orlando last week on “The Myth of America’s Decline” live for the e-Money Show next Tuesday at 3:00 p.m. EST. You can register for the symposium now. It will be available on demand online through Feb. 22 as well.

Portfolio Update

Berkshire Hathaway (BRK-B) lost 2.57% last week. Despite the extensive pullback in markets, BRK-B stands as the only stock in the entire S&P 500 Index with a 0% short interest. BRK-B is a HOLD.

Visa Inc. (V) dipped 2.91% as investors seemingly ignored Visa’s strong earnings report last Thursday. Visa reported earnings of $2.20 per share vs. a $2.16 per share analysts’ estimate, fueled by $3.2 billion in revenue vs. a $3.13 billion estimate. Visa also repurchased 5.5 million shares during the quarter, leaving another $4.2 billion in outstanding buyback funding. V dipped slightly below the 50-day moving average (MA) and is now a HOLD.

iShares MSCI Ireland Capped Investable Market Index (EIRL) gave back 2.86% over the past five trading days. Moody’s Investors Service recently upgraded Ireland’s government debt from “junk” status. This is significant as it allows many large institutional buyers prohibited from buying “junk” debt to invest. EIRL dipped slightly under its 50-day MA and is now a HOLD.

Google Inc. (GOOG) gained 1.35% last week on the back of a strong earnings report. Google reported $12.01 per share on $16.86 billion in revenue — a 17% rise in revenue quarter-over-quarter. Moreover, Google also reported a staggering 31% rise in paid online ad clicks. GOOG also announced the sale of its Motorola Mobility unit — a source of continued large losses in recent quarters. Finally, it is splitting its stock on April 2. GOOG is a BUY.

Wisdom Tree Japan Hedged Equity (DXJ) lost 5.21%. Japanese markets moved lower in concert with global markets last week, hurting DXJ. Negative movement in the dollar/yen currency rate only made matters worse for this currency-hedged exchange-traded fund. DXJ is a HOLD.

Guggenheim Spin-Off (CSD) fell 3.26% on heavy volume last week. CSD remains a HOLD.

First Trust US IPO Index (FPX) managed to weather the storm last week better than CSD to eke out a gain of 0.32%. Volume remained steady. FPX is just pennies under the 50-day MA and remains a HOLD.

WisdomTree Japan SmallCap Dividend (DFJ) lost 4.92% last week as volatility rocked this exchange-traded fund. Although small cap stocks can produce larger gains than many other less volatile sectors, the cost of this benefit is the occasional swift price swing. DFJ is a HOLD.

Vanguard Global ex-US Real Estate ETF (VNQI) gave back 2.95%. The market sell-off over the last two weeks has sent investors back into the relative safety of bonds — a move that will help to slow a rise in interest rates. This could be good news for mortgage borrowers. VNQI remains a HOLD.

iShares S&P Global Timber & Forestry Index (WOOD) fell 3.30%. WOOD pulled back to the mighty 200-day MA last week. WOOD has remained above this support level for all but a few days since breaking above it back in August of 2012. WOOD is a HOLD.

Market Vectors Biotech ETF (BBH) remained flat last week. Although the broader market correction tried to push BBH lower, the allure of the highly profitable biotech sector seems to be too much for investors to pass up. In fact, yesterday marked the highest trading volume BBH has ever seen, ending the day on a positive note for the biotech bulls. BBH remains a BUY.

ProShares Ultra-Short 20+ Year Treasury (TBT) fell 2.94% last week. TBT is a BUY.

Global X Guru Index ETF (GURU) fell 2.37% last week. However, the bulls moved in yesterday, pushing GURU up on higher volume. GURU is a HOLD.

The Blackstone Group (BX) gained 2.60% on a winning earnings report. BX reported $1.35 per share vs. an estimated $0.83 per share on $1.5 billion in revenues. Perhaps the single-largest driver of Blackstone’s 2013 success was its reported sale of real estate holdings purchased during the “Great Recession” which helped to double fourth-quarter profits. Chairman and CEO Stephen A. Schwarzman called 2013 “a record year by any measure” during the firm’s quarterly conference call. BX remains a BUY.

Las Vegas Sands Corp. (LVS) traded flat last week despite an excellent earnings report on Wednesday. LVS reported $0.72 earnings per share, compared to $0.52 in the fourth quarter of 2012, on a record $3.66 billion in revenue. LVS also reported strong gaming volumes and a share repurchase of $224.3 million. A few analysts’ firms reiterated ‘Buy’ ratings on LVS and Stifel Nicolaus increased its LVS price target to $92.00 on Thursday — 22.6% above yesterday’s close. LVS is a HOLD.

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