Enduring the Late September Blahs

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 down week for U.S. markets, with the Dow Jones slipping 0.44%, the S&P 500 falling 0.81% and the NASDAQ dropping 0.97%. But global stock markets really suffered the most during the past week, with the MCSI Emerging Markets Index tumbling 3.58%.

Big gainers in your Alpha Investor Letter portfolio included Skyworks Solutions Inc. (SWKS), up 1.93%, and the WisdomTree Japan Hedged Equity (DXJ), which gained 1.28%. Three positions, Berkshire Hathaway Class B Shares (BRK-B)WisdomTree Japan Hedged Equity (DXJ) and Skyworks Solutions Inc. (SWKS), also hit new 52-week highs.

Several of your positions fell below their 50-day moving averages and moved to a Hold. These include the iShares S&P Global Timber & Forestry ETF (WOOD)Global X Guru Index ETF (GURU)PowerShares Buyback Achievers (PKW) and the iShares MSCI Frontier 100 (FM).

The end of September cemented the market’s reputation as one of the worst times of the year. This has been the case this year as well, with negative market sentiment confirming the poor performance of the market.

20140924 fearandgreed tail

U.S. small-cap stocks have been hit particularly hard. The relatively strong performance of the major U.S. indices has been deceptively strong, masking an otherwise poor breadth in the stock markets, with relatively few stocks driving the indices higher. For example, when the Dow Jones Industrials closed at a 52-week high last Friday, the Up Issues Ratio on the NYSE was barely 40%. That means 60% of stocks that day actually declined.

The historical track record does improve somewhat starting around today, with U.S. markets tending to rise between now and the start of October. Combine that with a technically oversold market, and I expect the coming week to be stronger for U.S. markets than this past one.

More irksome is the trend in global stock markets, which have now erased all of their gains going back to the end of May. The good news is that Q4 tends to be historically the strongest for these markets. That means the bounce from current levels should be the strongest as well.

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Portfolio Update       

WisdomTree Japan Hedged Equity (DXJ) gained 1.28% despite weakness in the broader markets. DXJ remains well positioned to profit from the perfect storm of a falling yen, a rising dollar and a recovering Japan. DXJ also hit yet another 52-week high on Monday. DXJ is a BUY.

First Trust US IPO Index (FPX) dipped 1.80% last week. This play on initial public offerings (IPOs) fell despite the opening of the largest U.S. IPO in history last week. Chinese online giant Alibaba’s (BABA) IPO broke the record for largest-ever IPO, hitting the $25 billion mark. FPX is a BUY.

The Blackstone Group (BX) lost 1.69%. Blackstone threw in the towel on its Russian investment efforts due to frustration with trying to find lucrative deals in the current political climate. Russian President Vladimir Putin’s land-grabbing pursuits into Ukraine are clearly hurting Russia’s investment landscape. BX is a HOLD.

iShares MSCI Frontier 100 (FM) fell 1.54% over the past five trading days. Effective Sept. 22, Standard & Poor’s annual reclassifications moved Qatar and the United Arab Emirates from Frontier Market status to Emerging Market status. Dipping below the 50-day moving average (MA), FM is now a HOLD.

Skyworks Solutions Inc. (SWKS) rose 1.93% last week, even in the face of a generally dismal market. SWKS also hit a new 52-week high just last Friday, showing its momentum remains strong. SWKS is up 4.38% over the last month, up 19.32% for the previous three months and up a whopping 101.96% on a year-to-date basis. SWKS is a BUY.

P.S. Join Me for the World MoneyShow London, Nov. 7-8

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Nicholas Vardy

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