Waiting for the Q4 Bounce in Global Stocks

The past week was yet another negative one for the markets, with the Dow Jones down 0.08%, the S&P 500 falling 0.53% and the NASDAQ pulling back 0.34%. Global stock markets continued to tumble, with the MCSI Emerging Markets Index down 2.35%.

Big gainers in your Alpha Investor Letter portfolio include last month’s recommendation, Skyworks Solutions Inc. (SWKS), which gained 2.02%.

In addition, the WisdomTree Japan Hedged Equity (DXJ), Market Vectors Biotech ETF (BBH) and Skyworks Solutions Inc. (SWKS) all hit new 52-week highs.

Three of your positions — Google Inc. (GOOGL), Guggenheim Spin-Off (CSD) and ICICI Bank Ltd. (IBN) — fell below their 50-day moving averages and dropped to a HOLD.

September turned out to be as lousy as its reputation would suggest, with the S&P 500 dropping 1.84% over the course of the month.

If it seems worse, it is because market sentiment continues to be very poor — poorer than the actual performance of markets suggests. In addition, global stock markets have fared a lot worse over the past month, with the MSCI Emerging Markets Index down 7.77%.

That said, you do hold two of the rare exceptions to this negative trend in global stock markets — the WisdomTree Japan Hedged Equity (DXJ) and the Gulf States Index ETF Market Vectors (MES), which have risen 4.89% and 2.43% over the past month, respectively. To put that in perspective, there were only three global markets among the 44 that I track on a daily basis that eked out a gain of at least 1% in September. And you hold two of them. (The other one is Argentina — an economic basket case which just defaulted on its sovereign debt.)

Looking ahead, we are entering Q4, which has been traditionally the strongest one for risky assets, including U.S. small-cap stocks. This strong seasonality, combined with current negative market sentiment, bodes well for the quarter ahead and is why I expect markets to end the year on a high note.

Let me leave you with another feel-good statistic on the S&P 500. The S&P 500 just came off one of its biggest bear traps. Last 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 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 is a 93.3% chance of a gain.

Portfolio Update

Google Inc. (GOOGL) dipped 0.47% last week. Google continues to fire on all cylinders, both on its present and future pursuits. GOOGL remains number one in global search engine technology, with no competitor in sight, and rules the high-margin online advertising space. Among its large future plays, Google’s YouTube remains a huge advertising revenue source (with the potential to someday become another Netflix). Google also is emerging as a leader in the “electronic wearables” space and is emerging in the “in-car technology” sector as well. GOOGL fell below the 50-day moving average (MA) last week to become a HOLD.

WisdomTree Japan Hedged Equity (DXJ) moved 0.21% higher and hit a new 52-week high. DXJ continued to benefit from the trend of a falling yen and rising dollar last week, with the dollar hitting a new six-year high against the Japanese currency. DXJ is a BUY.

Guggenheim Spin-Off (CSD) lost 0.53%. Corporate spin-offs continue to be hot properties going into the fourth quarter of the year. And things could heat up even more as eBay recently announced it was splitting off the crown jewel of the online banking and payments world — PayPal. CSD dipped slightly to become a HOLD.

iShares S&P Global Timber & Forestry Index (WOOD) gave back 0.92% last week. Looking at the technical charts, WOOD is back to the $49.00 price level — a level it has not fallen below since last September. This marks WOOD’s fifth rolling visit to the $49.00 level — a level it has bounced higher from every time. WOOD remains a HOLD.

Market Vectors Biotech ETF (BBH) added 0.29%. BBH hit a new 52-week high last week, also marking a new all-time high for this exchange-traded fund (ETF). Although BBH took a surprising dip early in 2014, BBH has been on a long and extended move higher since April. I’ve continued to highlight this position’s magnificent comeback frequently, and you have been able to profit handsomely. For those of you who have been buying the recovery, you have realized a far greater return on BBH’s 33.33% to-date gain than simply holding the initial purchase recommendation. BBH remains a BUY.

The Blackstone Group (BX) lost 1.47% over the past five trading days. Blackstone recently announced it would report earnings on Oct. 16. Earnings estimates call for an average $0.98 earnings per share on an average $1.96 billion in revenue. BX is a HOLD.

ICICI Bank Ltd. (IBN) lost 6.42%. The pro-democracy protests in Hong Kong are taking their toll on a wide range of stocks in emerging markets, and IBN has been unable to escape the downdraft of the broader pullback. IBN dipped below the 50-day MA and is now a HOLD.

Skyworks Solutions Inc. (SWKS) gained 2.02% and hit a new 52-week high. MKM Partners initiated coverage on SWKS last week, setting its rating at “Buy.” MKM Partners also called for a $68.00 price target — a potential 17.25% gain from yesterday’s close. SWKS 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.

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