A 93.3% Chance for a Rally in the Month Ahead?

Last week was another down one in global stock markets, as the Dow Jones fell 0.96% and the S&P 500 tumbled 1.37%. The NASDAQ ended the week down 1.48%. Global stocks suffered even more, with the MCSI Emerging Markets Index ending the week 2.39% lower.

The big gainer in your Bull Market Alert portfolio was Gilead Sciences Inc. (GILD), which rose 2.28%.

Otherwise, several of your Bull Market Alert positions fell below their 50-day moving averages and changed to a HOLD. These include Visa Inc. (V), Flextronics International (FLEX), Vipshop Holdings Limited (VIPS) and United Rentals, Inc. (URI).

With nine positions, your Bull Market Alert portfolio is bursting at the seams, so I am going to hold off on making a new recommendation this week.

Despite Asian stock markets hitting four-month lows overnight, there is reason to think that the market is due for a bounce over the coming month (and quarter).

First, we just came off one of the biggest bear traps in the S&P 500. On Thursday, the S&P 500 traded below its 50-day moving average for the first time in over a month. Just as fast as it lost it ground, the S&P 500 returned to its 50-day moving average as it closed back above it on Friday. Since 1989, the S&P 500 rallied over the next month following a bear trap 14 out of 15 times. That’s a 93.3% chance of a gain.

Second, we are coming off Q3, the weakest quarter of the year, and entering the strongest, Q4. And going back all the way to 1929, the market rallied an average of 5.8% by the third month of the above-mentioned bear trap.

Finally, market sentiment has been lousy since late August. Back in “extreme fear” mode, market sentiment is due for a bounce, along with the rest of the market. And if the market does bounce over the coming month or so, it will have repeated a pattern we saw last year.

Looking at your Bull Market Alert portfolio, the positions most oversold and due for a bounce are Bank Of Ireland (IRE), Flextronics (FLEX), iShares Transportation Average (IYT), United Rentals, Inc. (URI), Visa Inc. (V) and iShares MSCI BRIC (BKF). If you are daring, these are the positions you should add — though I am not making a formal recommendation in this regard.

Portfolio Update

Visa Inc. (V) fell 1.99% last week. Analysts looking at the coming Apple Pay payment model believe that Apple may have a winner on its hands. Apple Pay currently has agreements with several major banks and retailers, as well as all of the big credit card players, including Visa. Industry watchers believe both good security and good usability could increase electronic payment volume over the coming years. V dipped below the 50-day moving average (MA) to become a HOLD.

iShares MSCI BRIC ETF (BKF) lost 2.16%. The BRICs sustained their pullback last week on continuing speculation that the Federal Reserve may raise interest rates sooner and faster than expected. However, the Fed’s Janet Yellen has made repeated statements indicating that rate hikes may not come until late next year, or even 2016. BKF is a HOLD.

United Rentals, Inc. (URI) closed the week down 3.60%. The broader market sell-off pulled URI lower, despite URI joining the S&P 500 last Friday. URI is expected to report earnings on Oct. 15. URI’s dip last week pushed it below the 50-day MA and to a HOLD.

Gilead Sciences Inc. (GILD) bucked the market trend as positive news pushed it 2.28% higher. The European Committee for Medicinal Products for Human Use (CHMP) returned a positive opinion last week on GILD’s Marketing Authorization Application for Harvoni. This speeds Harvoni’s approval process, allowing one of GILD’s big drug prospects to move quicker towards an approval by the European Commission (EC) for use in the 28 countries of the European Union. GILD is a BUY.

iShares Transportation Average (IYT) dipped 2.03% for its first week in the Bull Market Alert portfolio. IYT was unable to escape the down force of the wide market pullback. However, the positive case for the transports’ outperformance remains intact as we enter the traditionally stronger fourth quarter. IYT is a BUY.

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

I invite you to join me for The World MoneyShow in London, Nov. 7-8, at the Queen Elizabeth II Conference Centre. I will be presenting on Saturday, Nov. 8, 3:30 – 4:30 pm. Register at no charge by calling 1-800-970-4355 and identify yourself as a Nicholas Vardy subscriber by mentioning code 036913 or by clicking this link and following the instructions.