A Summer of Soporific Somnolence

Nicholas Vardy

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

U.S. markets endured a down week with the Dow Jones dropping 1.18%, the S&P 500 falling 0.68% and the NASDAQ pulling back 0.30%. Global stock markets bucked the trend, with the MCSI Emerging Markets Index ending the week 0.22% higher.

You did have a handful of gainers in your Alpha Investor Letter portfolio, including the Market Vectors Biotech ETF (BBH), which added 2.91%, and the WisdomTree Japan Hedged Equity (DXJ), which rose 1.31%.

Several positions did drop below their 50-day moving averages and technically moved to a HOLD. These include Berkshire Hathaway Class B Shares (BRK-B), ICICI Bank Ltd. (IBN), the PowerShares Dynamic Energy Exploration & Production ETF (PXE) and Markel Corp. (MKL).

If it seems to you that there isn’t much happening in the markets, that’s because — well, there really isn’t.

The S&P 500 closed yesterday right near the same level it did back in mid-June. So it’s not like the market has been doing poorly. It’s just that it hasn’t been doing much at all.

Volatility has dropped to vanishingly low levels. One technical measure of the market’s volatility — the Bollinger Bands -– has dropped below 2% for 10 straight days for the first time since January 2007. That puts today’s market in the bottom 1% of all such readings since 1928. Calm like this can last for a surprisingly long time. And with the calendar heading into August, we may have a while to go.

Although the headlines would have you thinking otherwise, the good news is that both the United States and global markets seem immune to bad news coming out of Russia. In fact, global stock markets have been gathering steam of late, with Asian shares touching a six-and-a-half-year peak in this morning’s trading. The MSCI Emerging Markets Index is hitting levels not seen since January of 2013. The Chinese stock market, in particular, has started to rally sharply. After several years of lousy performance and false starts, this market may be soon be worth a second look.

Portfolio Update

iShares MSCI Ireland Capped Investable Market Index (EIRL) gained 0.31% last week. Ireland is currently seeking to refinance its bailout loans in order to get a better interest rate. Ireland also recently gained preliminary approval to begin early payoff of its expensive International Monetary Fund (IMF) loans. This is all bullish news for your bet on the Irish recovery. EIRL is a HOLD.

Exclusive  This Is What It Means

WisdomTree Japan SmallCap Dividend (DFJ) rose 0.57%. This Japanese small-cap dividend fund continued its surge back from a recent correction to break above its key $54.00 resistance point and hit a new 52-week high. WisdomTree Japan Hedged Equity (DXJ), your other Japan-based holding, is also forming a similar pattern and moving higher. DFJ (and DXJ) are both a BUY.

Market Vectors Biotech ETF (BBH) added 2.91% over the past five trading days. The biotech sector is continuing its “stealth comeback” after a hefty correction in the first quarter of the year. Now up better than 24% in your portfolio, BBH still has plenty of room to run back to its previous highs. BBH recently took a convincing bounce higher from its 50-day moving average (MA) and is a BUY.

Las Vegas Sands Corp. (LVS) gained 0.96%. The Nevada State Gaming Board released its June gambling statistics last week and reported a 14% jump in casino revenues. This may have a broad effect on gambling-based stocks over the short term and push prices higher. LVS pushed above its 50-day MA intraday yesterday, but fell back below it to remain a HOLD.

PowerShares Dynamic Energy Exploration & Production ETF (PXE) dipped 1.43% last week. However, with the United States, the European Union and several other players in Russia’s neck of the woods recently turning up the heat on Vladimir Putin and his cronies, a fire may ignite under energy prices at any moment, sending this exchange-traded fund significantly higher. PXE dipped to a HOLD last week.

Nicholas Vardy

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