Flat Markets Bore Investors

Nicholas Vardy

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

Despite the leading U.S averages hitting record highs, the overall market ended the week pretty much where it started. The Dow Jones was up 0.28%, the S&P 500  rose 0.64%, while NASDAQ fell 0.07%. The MCSI Emerging Markets Index ended the week 0.35% higher.

Big gainers in your Alpha Investor Letter portfolio included the WisdomTree Japan Hedged Equity (DXJ), gaining 2.19%; the WisdomTree Japan SmallCap Dividend (DFJ), adding 1.92%; and the PowerShares Dynamic Energy Exploration & Production ETF (PXE), rising 1.50%. In addition, the Market Vectors Gulf States Index ETF (MES) hit a new 52-week high.

The Vanguard Russell 2000 Index ETF (VTWO) fell below its 50-day moving average (MA) and moved to a HOLD. The Blackstone Group L.P. (BX) nudged back above its 50-day moving average and moved back to a BUY.

From speaking to clients at my investment firm Global Guru Capital this week, I know that many of you are frustrated by the lack of much movement in the markets. From my conversations with some of the world’s most sophisticated institutional investors, I can assure you that they share your frustration.

On the one hand, the U.S. broader market averages, such as the S&P 500, are hitting record highs. On the other hand, these averages have been led by an ever-narrower range of large-cap stocks. That is in stark contrast to 2013, when medium- and small-cap stocks in the United States were trouncing the overall market. Today, the strong performance of a few stocks is driving the averages. That explains why the market feels a lot flatter to most investors than the headlines about new record highs would suggest.

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Your Alpha Investor Letter portfolio is a very diverse portfolio. Yet when I put it through my standard measures of technical analysis, only two of your positions are still in a solid, upward trend: India’s ICICI Bank (IBN) and the Market Vectors Gulf States Index ETF (MES). Even last month’s recommendation, the PowerShares Dynamic Energy Explor & Prod (PXE), has flattened out.

The good news is that India and the Gulf States are the #1 and #2 global stock markets in 2014, among the 45 global markets that I track on a daily basis. At the same time, both India and the Gulf States positions are already far off most investors’ maps. Other strong-performing global markets over the past three months are Turkey and Russia. I have recommended Turkey in the Alpha Investor Letter in the past, and Russian stocks are a current recommendation in both of my short-term trading services. But with the political risks involved, neither market is for the faint of heart.

Therefore, my recommendation to you is the same as to my clients: Just sit tight and realize that the market’s current eerie calm is temporary. The positions and strategies you have in place will serve you well once the market returns to normal.

Portfolio Update

WisdomTree Japan Hedged Equity (DXJ) gained 2.19% last week. Your bet on Japanese equities continued higher as the Japanese bull resumed, boosted by a weakening yen. Interest in Japan is rising, with DXJ’s options trading volume five times higher than normal and the call-to-put ratio shows a whopping 29-to-1 skew to the bullish side. DXJ is a BUY.

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Guggenheim Spin-Off (CSD) gained 0.60% over the past five trading days. CSD closed a third week of gains as it continued to move higher on a recent “double bounce” from its 200-day moving average. CSD gives you sophisticated and diversified exposure to the profits of corporate spin-offs. CSD recently moved above its 50-day MA and is a BUY.

Vanguard Global ex-US Real Estate ETF (VNQI) rose 1.15%. Compared to domestic real estate, foreign real estate has been a laggard over recent quarters. However, investors have taken notice and are now pouring money into this real estate class. VNQI is up now up nearly 12% since bottoming at the end of last quarter. VNQI is a BUY.

Global X Guru Index ETF (GURU) gained 0.71% last week. GURU invests in stocks favored by hedge funds and other world-class investment firms, as disclosed on their required quarterly reports. GURU closed the week just 10 cents shy of its 52-week high and remains a BUY.

The Blackstone Group L.P. (BX) added 0.87%. Although Blackstone is well known for its real estate investments, BX announced a new investment in the technology sector yesterday. Blackstone is now an investment partner in Cloud Theory, a tech company that integrates an asset management application onto a Salesforce customer relationship management back-end. BX moved above its 50-day MA last week and is now a BUY.

PowerShares Buyback Achievers (PKW) added 0.82% last week, missing its 52-week high by just two cents. PKW is one of several “smart beta” holdings in your portfolio that have been on the rise in recent weeks. PKW allows you to profit from companies that are buying back their own stock, which they view as cheap. PKW is a BUY.

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Nicholas Vardy


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