Markets Resume Their Upward March

Nicholas Vardy

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

It was the second consecutive strong week for both U.S. and global stock markets across the board. The Dow Jones rose 2.35%, the S&P 500 gained 2.25% and the NASDAQ leapt 3.28%. The MCSI Emerging Markets Index ended the week 1.24% higher.

Big gainers in your Alpha Investor Letter portfolio included the Market Vectors Biotech ETF (BBH), which jumped 6.81%; Google Inc. (GOOGL), which gained 3.89%; ICICI Bank Ltd. (IBN), which climbed 3.72%; and the Vanguard Russell 2000 Index ETF (VTWO), up 3.27%. The Market Vectors Biotech ETF (BBH) and ICICI Bank Ltd. (IBN) also hit new 52-week highs.

Several of your positions moved back above their 50-day moving averages and returned to a BUY. These include the Guggenheim Spin-Off (CSD), the iShares S&P Global Timber & Forestry ETF (WOOD) and Vanguard Russell 2000 Index ETF (VTWO).

Global stock markets have rallied sharply during the past two weeks. Sectors that have been in favor — biotechnology and India — have rallied particularly strongly and are now trading at 52-week highs.

At times like this, higher-risk positions that sold off the most tend to outperform the slow and steady gainers. Note that while Berkshire Hathaway (BRK-B) has been your strongest performer in 2014 and is up 18.47% this year, it has trailed the performance of your other Alpha Investor Letter positions during the past month. Most notably, you have seen jumps of 14.84% in Skyworks Solutions Inc. (SWKS) and 10% in KraneShares CSI China Internet ETF (KWEB) just since you re-entered them on Oct. 16.

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The one anomaly in this regard is the continued relative underperformance of global markets as measured by the MCSI Emerging Markets Index. I would have expected these markets to rally more strongly as we settle into Q4.

Nevertheless, as I noted last week, we now have entered what seasonally has been the strongest time of the year. In addition, despite the recent rally, market sentiment continues to be very negative. These two factors bode well for the weeks ahead. Overall, I expect the market to continue to be strong for the remainder of 2014.

Portfolio Update

WisdomTree Japan Hedged Equity (DXJ) added 2.60% last week. Japanese exports for September grew by 6.9% year-over-year, marking the fastest rise in seven months. The weakening Japanese yen has been a boon for DXJ, as it hedges any decline. A weak yen also stimulates the export sector significantly. DXJ is a HOLD.

Google Inc. (GOOGL) gained 3.89%. Google Wallet, Google’s equivalent to Apple Pay, has been quietly operating for nearly three years with little to no marketing. Recently, Apple has gone to great lengths and expense to highlight its launch of Apple Pay, as well as install retail point-of-sale hardware in places that support the use of Near Field Communication (NFC) payments. Google is planning a large ad campaign later this year to push Google Wallet because, as luck would have it, Google Wallet can be used at all the same payment locations as Apple Pay. GOOGL is a BUY.

Guggenheim Spin-Off (CSD) rose 2.35% during the past five trading days. Corporate spin-offs going into year-end 2014 and 2015 are showing continued strength. CSD pulled back along with the broader markets recently but has recovered strongly. CSD not only pushed above its significant 200-day moving average (MA) yesterday, but it also moved above the 50-day MA to become a BUY.

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Vanguard Global ex-US Real Estate ETF (VNQI) gained 1.16%. Although VNQI suffered a recent downturn, this global real estate exchange-traded fund (ETF) has gained new life as global markets recover. A recent Forbes magazine article reported that a diverse field of global real estate investors are finding widespread opportunity and predicted an upswing in several of the world’s real estate markets. VNQI is a HOLD.

Market Vectors Biotech ETF (BBH) jumped 6.81% over the past week. Many stocks have notched a robust recovery over the past few weeks, trading very near pre-pullback price levels. However, the chart for BBH reveals that it has risen at a rate double that of stocks in other sectors. BBH gained a whopping 18% in just the past two weeks and is currently at an all-time high. BBH remains a BUY.

ICICI Bank Ltd. (IBN) gained 3.72% to hit a new 52-week high. IBN will report earnings on Thursday. Traders are taking a positive stance on IBN’s coming report as trading volume has been positive nine out of the past 10 days. IBN is up over 10% for this same period. IBN is a BUY.

Skyworks Solutions Inc. (SWKS) rose 2.03%. A recent Skyworks press release highlighted the company’s latest new LTE chip. This technology will be incorporated into the latest class of high-end smartphone and wireless devices to deliver the fastest LTE wireless networking speeds ever offered to end-users. Suffice to say, with the world’s voracious appetite for better, faster mobile connectivity, SWKS should do quite well with this new offering. SWKS will report earnings on Nov. 6, after markets close. SWKS is a BUY.

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Nicholas Vardy

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