Global Markets Stumble on Tension in the Middle East

Nicholas Vardy

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

Stock markets across the globe pulled back across the board this past week. The Dow Jones was down 0.81% and the S&P 500 fell 0.45%. The MCSI Emerging Markets Index also fell 1.21%.

Big gainers in your Alpha Investor Letter portfolio included the PowerShares Dynamic Energy Exploration & Production ETF (PXE), up 3.53%, which also hit a 52-week high. The WisdomTree Japan SmallCap Dividend (DFJ) rose 1.51% and the WisdomTree Japan Hedged Equity (DXJ) jumped 1.11%.

Two of your positions, Berkshire Hathaway (BRK-B) and the iShares MSCI Frontier 100 (FM), slipped below their 50-day moving averages and moved to a HOLD.

The unrest in Iraq is weighing heavily on global stock markets. That said, once the negative headlines fade, these markets tend to snap back very quickly. The fundamental investment case behind all of your global holdings remains intact.

The S&P 500 continues to exhibit remarkable strength, even in the face of the uncertainty in the Middle East. Research this morning on SentimenTrader points out that the market has now gone 42 trading days without a 1% daily move, up or down. That is the equivalent of two months in trading days. During this stretch, the S&P has gained more than 4%. During similar situations in the past, if stocks held up after some short-term weakness, then they tended to do extremely well in the months ahead — up an average of 5.7% over the next six months.

Based on historical precedent, odds are the best strategy is just to hold tight. However, as always, keep a close eye on your stops.

Portfolio Update

Berkshire Hathaway (BRK-B) dipped 1.73% over the last five trading days. Warren Buffett spoke early last week in Las Vegas about his interest in renewable clean-energy enterprises. So far, Mr. Buffett’s clean-energy ventures total nearly $15 billion, and he said he is ready to invest $15 billion more. BRK-B dipped slightly below the 50-day moving average (MA) and moved to a HOLD.

Google Inc. (GOOGL) fell 3.11% last week. Google’s annual “Google I/O” conference is scheduled for late next week and the company is likely to announce some of its latest creations. Although rumors abound, many technology experts believe some big items are on the agenda. Possibilities include the next major version of Android, updates on its wearable items like Google Glass and Google Wear, advances to its Chromecast media-streaming device and perhaps the biggest of all — Android TV. Although details are light, Android TV is expected to go head-to-head with other major established devices such as Apple TV and Roku. GOOGL is a BUY.

Guggenheim Spin-Off (CSD) rose 0.54% over the past week. CSD invests in companies that established corporations spin off. CSD has handily outperformed the broader market throughout its existence. Expected spin-off activity for the remainder of 2014 and early 2015 appears robust and should help CSD move higher. CSD is a BUY.

WisdomTree Japan SmallCap Dividend (DFJ) gained 1.51%, rising for the fourth week of gains in a row. The Japanese recovery continues, and DFJ is moving higher on the back of the more sensitive and volatile small-cap sector. DFJ is just 12 cents away from its 52-week high — a level it last saw in January 2014. DFJ is a BUY.

Global X Guru Index ETF (GURU) closed the week perfectly flat. This ETF invests in the companies that hedge funds invest in — as divulged on their quarterly 13F filings. GURU is up significantly over the past 30-day period and is hovering at its 52-week high. GURU is a BUY.

PowerShares Dynamic Energy Exploration & Production ETF (PXE) gained 3.53% last week. Conflicts that affect oil production are bullish for the price of oil. With PXE hitting a new 52-week high last week, expect more of the same, at least until the news on the Iraqi conflict abates. PXE is a BUY.

iShares MSCI Frontier 100 (FM) fell 2.22% for its first week in the Alpha Investor Letter portfolio. A quick resolution to the tensions surrounding Baghdad could send FM into a quick and robust snap-back rally. FM dipped below the 50-day MA recently and moved to a HOLD.

Nicholas Vardy


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