Was That It?

Nicholas Vardy

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

U.S. stock markets have rallied sharply over the past week, with the Dow Jones up 1.84%, the S&P 500 rising 3.39% and the NASDAQ bouncing 4.55%. Surprisingly, the MCSI Emerging Markets Index ended the week down 0.36%.

Big gainers in your Alpha Investor Letter portfolio included some of your highest-risk and highest-volatility positions. Skyworks Solutions Inc. (SWKS) jumped 12.55%, the Market Vectors Biotech ETF (BBH) shot up 9.92%, the KraneShares CSI China Internet ETF (KWEB) jumped 8.18% and ICICI Bank Ltd. (IBN) added 6.15%.

Markel Corp. (MKL) also hit a new 52-week high.

Both the Market Vectors Biotech ETF (BBH) and ICICI Bank Ltd. (IBN) climbed back above their 50-day moving averages, and both are back to a BUY.

With the market bouncing so strongly over the past couple of days, the question arises — was that it?

As I have suggested over the past month or so, I don’t expect the recent market swoon to usher in Chapter II of the global financial crisis. In fact, odds are that the market will continue to bounce strongly between now and the end of the year. And you will see your higher-risk positions bounce the most, as they have this past week.

Here are three reasons why…

First, broad measures of market sentiment, such as the CNN Money Fear & Greed Index, actually hit zero briefly last week. Even after this past week’s sharp rally, the Index is now only up to nine. That means there’s plenty more to go.

Second, the numbers from the U.S. economy are hardly apocalyptic. The U.S. economy grew at 4.6% in Q2, and it’s expected to grow 3% in Q3. The headline unemployment rate hasn’t been as low as 5.9% since, well, before the financial crash. Housing starts are recovering after a brief stumble. Lower oil prices are acting as their own form of quantitative easing and are putting billions of dollars back into consumers’ pockets.

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Finally, the fourth quarter traditionally has been the strongest quarter of the year for U.S. markets. The advent of November also marks the start of the strongest six months of the year. Money invested in Q4 in the Dow Jones Industrial Average since 1950 from November through April has returned an average 7.5 percent. Money invested during the other six months of the year generated only an average yearly gain of 0.3 percent. And based on my experience, the Q4 rally tends to be even stronger in global (particularly emerging) markets as investors reposition themselves for the coming year.

Portfolio Update

Berkshire Hathaway (BRK-B) added 1.15% last week. Berkshire holds a sizeable position in IBM, which did not report a good third quarter Monday morning. The drop in IBM’s stock price lost Buffett an estimated $1 billion. However, your position in BRK-B remains firmly in positive territory thanks to its diversified portfolio. BRK-B is a BUY.

Google Inc. (GOOGL) dipped 1.94%. Google reported earnings last Thursday of $6.35 earnings per share (EPS) vs. an estimated target of $6.53 EPS. Sales came in at $16.52 billion vs. an expected $16.58 billion. Analysts cited a decrease in the growth of ad clicks on Google pages as a major factor in the revenue dip. Higher-than-expected research and development costs weighed heavily on Google’s EPS miss. GOOGL remains a HOLD.

WisdomTree Japan SmallCap Dividend (DFJ) gained 1.43% over the last five trading days. The September Tankan survey confirmed improving Japanese business sentiment and increased bets on the future of the Japanese recovery. Large businesses are planning a collective 8.6% increase in capital spending vs. a 7.2% forecast. Small-cap business tends to correlate with these moves as many small businesses support large-cap entities as outside vendors, consultants and contractors. DFJ is a HOLD.

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iShares S&P Global Timber & Forestry Index (WOOD) jumped 5.05% last week — springing off the recent lows created by negative market sentiment. This “relief rally” leaves WOOD just a few cents below its 50-day moving average (MA). WOOD is a HOLD for the moment.

Market Vectors Biotech ETF (BBH) shot up 9.92% over the past week. BBH has perhaps posted the most aggressive recovery in the Alpha Investor Letter portfolio, as the appetite for biotech has been hard to quell since its recovery beginning in April. BBH moved to a BUY yesterday.

Vanguard Russell 2000 Index ETF (VTWO) rose 4.82%. This play on the Russell 2000 index bounced strongly along with the broader markets last week. Volume spiked to significant new highs early last week as traders bought this position in force. VTWO is a HOLD.

ICICI Bank Ltd. (IBN) added 6.15% last week as it moved rapidly back to its 52-week high. The International Monetary Fund (IMF) increased its 2015 economic growth forecast for India recently, raising its 6.0% estimate to 6.4%. The Modi government has been hard at work on reforms designed to pull in foreign capital, and investors are taking notice. IBN moved up past the 50-day MA and is now a BUY.

Markel Corp. (MKL) gained 3.23%, hitting a new 52-week high. Markel spiked tremendously yesterday in the wake of the market’s big gains as the Dow Jones jumped 215 points. MKL will report earnings on Nov. 5, after markets close. MKL dipped below the 50-day MA briefly last week but remains a BUY.

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KraneShares CSI China Internet ETF (KWEB) jumped 8.18% since I recommended it again last week. KWEB was one of two positions that had stopped out prematurely in recent days. With its great upside potential and the position coming off recent lows, this is an opportune time to be a buyer. KWEB is a BUY.

PowerShares DB US Dollar Bullish ETF (UUP) added 0.22% for the first week in your portfolio. This bullish bet on the U.S. dollar is my latest recommendation from the November Alpha Investor Letter newsletter. The dollar has been in a solid uptrend and will very likely remain on this course for some time to come. This latest dip is an excellent entry point, and UUP is a BUY.

Skyworks Solutions Inc. (SWKS) is up 12.55% from last week. This is the second of two recent re-purchases on positions that stopped out in your portfolio. Buying the stock right back has been a very profitable move so far. SWKS will report earnings on Nov. 6, after markets close. SWKS is a BUY.

Nicholas Vardy

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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