U.S. and Global Markets Rally: ‘Sell In May and Go Away?’

Nicholas Vardy

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

What a difference a week makes…

The ink was barely dry on this month’s issue of The Alpha Investor Letter before both U.S. and global stock markets rallied sharply. After getting hammered at the beginning of April, the S&P 500 is now riding a six-day winning streak, something it hasn’t done since September.

Over the past week, the Dow Jones rose 1.55% and the S&P 500 was up 1.98%, while the tech-heavy NASDAQ jumped 3.16%. The MCSI Emerging Markets Index continued to rally, rising 1.26%.

Your Alpha Investor Letter portfolio enjoyed a terrific recovery with Las Vegas Sands Corp. (LVS) jumping 9.40%, The Blackstone Group (BX) rocketing 9.17%, the Market Vectors Biotech ETF (BBH) recovering 6.81% and the First Trust US IPO Index (FPX) adding 4.08%. Several other positions gained 3% or better last week.

Both Berkshire Hathaway (BRK-B) and the Market Vectors Gulf States Index ETF (MES) hit new 52-week highs. And The Blackstone Group (BX) and Powershares Buyback ACH (PKW) rose above their 50-day moving averages and moved back to a BUY.

Pullbacks like the ones we’ve just experienced are always challenging. To mix my metaphors, you never know whether you should just ride out the storm or to throw in the towel.

This highlights the importance and challenge of setting stops that distinguish between the “signal” and the “noise.” I recommend fairly wide stops in The Alpha Investor Letter. That’s why we were stopped out of only a single position during this recent market pullback. And you weren’t stopped out of that single position, Visa Inc. (V), for fundamental reasons. I, in fact, still hold it in my personal portfolio.

At the same time, it’s also important to understand that the recent sell-off was focused on high-growth, momentum stories. And those are the same positions that have bounced the most strongly. According to my favorite long-term technical indicators, several of your current positions are still oversold, making it a good time to think about adding to your positions. The Blackstone Group (BX) is already back above its 50-day moving average. Also keep an eye on Google (GOOGL), Las Vegas Sands (LVS) and Market Vectors Biotech ETF (BBH) — assuming they move back above this key level.

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Looking ahead, after six straight days up in the S&P 500, I would not be surprised to see some consolidation in the market. My greater concern is that we are approaching the weakest time of the year. Consistent with the old Wall Street adage “Sell in May and go away,” this time of the year has been difficult for U.S. stock markets each of the past three years. It remains to be seen whether this May will be the same. But recent history is against us, so buckle in for an uncomfortable ride.

Finally, several of my clients at Global Guru Capital are coming through London this summer, and I am meeting with them for drinks at one of the old English gentlemen’s clubs where I am a member. Please drop me a note if you are in town, and perhaps we can arrange for something similar. You can contact me at nvardy@globalgurucapital.com. A word of warning: my wife and I are expecting our first child in early June — so don’t hold it against me if I show up a bit bleary eyed once I become a dad!

NOTE: Global Guru Capital is a Securities and Exchange Commission-registered investment adviser, and is not affiliated with Eagle Products.

Portfolio Update

Berkshire Hathaway (BRK-B) added 2.73% last week, hitting a new 52-week high on Monday. Berkshire Hathaway’s “B” shares allow the average investor to enjoy Buffett-sized gains, without the need to plunk down $191,720.00 per share (as of yesterday) on his “A” shares. BRK-B is a BUY.

Google Inc. (GOOGL) closed the week flat after reporting a slight earnings miss last Wednesday. Google reported $6.27 earnings per share vs. an estimated $6.41, on revenue of $15.42 billion vs. an estimated $15.54 billion. This did not deter analysts, however, as Credit Suisse maintained its “Outperform” rating and increased its price target to $735, while Bank of America maintained its “Buy” rating and listed a $660 price target. Trading below its 50-day moving average (MA), GOOGL is a HOLD.

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Guggenheim Spin-Off (CSD) surged 3.57% last week, stopping just short of its 50-day MA yesterday. Estimates for North America show 46 corporate spin offs in the pipeline over the next year, for an expected total of $2 trillion in newly raised capital. CSD is a HOLD.

Vanguard Global ex-US Real Estate ETF (VNQI) added 1.02%. VNQI continued to hold its position above the 200-day MA after testing this line twice over the past three weeks. With many years of depressed global economic activity finally behind it, international real estate is finding its way higher. VNQI is a BUY.

Market Vectors Biotech ETF (BBH) jumped 6.81% last week. BBH finally appears to be turning around at the 200-day MA after enduring a significant and lengthy correction. This diversified bet on biotech still has positive fundamentals and should provide a boost for a sector that is viciously oversold. BBH is a HOLD.

The Blackstone Group (BX) rocketed 9.17% last week on a positive earnings report. BX reported earnings on April 17 of $4.40 earnings per share vs. an estimated $4.11 a share. Revenue increased 9% to $2.67 billion vs. a $2.66 billion estimate. Blackstone declared a quarterly distribution of $0.35 per common unit to holders of record at the close of business on April 28, to be paid on May 5. BX rose above the 50-day MA last week and is now a BUY.

Las Vegas Sands Corp. (LVS) jumped 9.40%. LVS will report earnings on April 24, after markets close. Rising quickly to stop just shy of the 50-day MA, LVS is a HOLD for the moment.

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Market Vectors Gulf States Index ETF (MES) added 3.59% last week as it hit yet another 52-week high. MES has produced back-to-back winning weeks since touching the 50-day MA one month ago. MES has now risen 14.98% in your portfolio just since its Feb. 13 recommendation. MES is a BUY.

ICICI Bank Ltd. (IBN) was flat in its first week in your portfolio. IBN made its fourth recent attempt to break above the $45.00 price level in just the past month. Once IBN breaches this level, expect the gains to continue for this financial bet on India. IBN is a BUY.

BIG ANNOUNCEMENT: On May 1, I’ll inform you about a significant opportunity… one that could have a major impact on your portfolio, for years to come. Stay tuned.

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