A Solid Week, But Caution Ahead

Nicholas Vardy

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

Thanks to yesterday’s strong rally, U.S. stock markets ended the week in the black. The Dow Jones was up 1.61%, the S&P 500 rose 1.01% and the NASDAQ gained 0.99%. The MCSI Emerging Markets Index lost ground and ended the week down 0.22%.

Big gainers in your Alpha Investor Letter portfolio included Cambria Global Value ETF (GVAL), which rose 1.99%; the iShares S&P Global Timber & Forestry Index (WOOD), which gained 1.80%; the Guggenheim Spin-Off (CSD), which added 1.49%; and Markel Corp. (MKL), which jumped 1.07%.

The iShares S&P Global Timber & Forestry Index (WOOD) and Skyworks Solutions Inc. (SWKS) both hit new 52-week highs.

Rising above their 50-day moving averages, both the Guggenheim Spin-Off (CSD) and Vanguard Russell 2000 Index ETF (VTWO) moved to a BUY. After selling off strongly on news that India would hold interest rates constant, ICICI Bank (IBN) moved to a HOLD.

The see-saw action in the U.S. stock market continued this week, this time with markets moving to the upside. Looking back to the end of November, neither the bulls nor the bears seem to be able to gain overall control as U.S. markets have been locked in a trading range.

Without wanting to sound unduly pessimistic, I do see several worrisome signs for the U.S. stock market.

First, U.S. consumer sentiment is at six-year highs, even as U.S. economic expansion shows signs of slowing down. That is always a solid contrary indicator.

Second, the traditionally strong seasonality of the market in December and January failed to materialize. That’s highly unusual.

Third, analysts have been downgrading their forward earnings estimates for S&P 500 companies steadily for months with a 5% decline in earnings expectations from the peak last fall.

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Finally, the U.S. market remains overvalued using long-term measures like the Cyclically Adjusted Price Earnings (CAPE) ratio championed by Yale Nobel Prize-winning economist Robert Shiller.

That all said, your Alpha Investor Letter portfolio has gotten off to a strong start in 2015. Indeed, 10 out of 14 positions are up so far this year. Skyworks Solutions (SWKS) has soared 13.15%, the Vanguard Global ex-US Real Estate ETF (VNQI) has risen 5.12% and the Market Vectors Biotech Index (BBH) is up 3.37%.

And there are still plenty of other opportunities out there. As I pointed out in yesterday’s issue of The Global Guru, European stock markets offer terrific potential after the launch of quantitative easing — especially if you hedge out the currency risk. Your long positions in the U.S. dollar through the Powershares DB US Dollar Bullish ETF (UUP) should continue to serve you well.

Finally, I look forward to meeting many of you personally at the Money Show in Orlando this year, Feb. 4-7, at the Gaylord Palm Resort & Convention Center. To register for free admission to the investment conference as my guest, click here or call 1-800-970-4355 and mention you are my subscriber. Use priority code 038045.

In addition, I already have private meetings lined up with several of you who are investment advisory clients at my firm, Global Guru Capital. If you are interested in money management services independent of the newsletters I write for Eagle Financial Publications, please drop me a note at nvardy@globalgurucapital.com.

NOTE: Global Guru Capital is a Securities and Exchange Commission-registered investment adviser, and is not affiliated with Eagle Financial Publications.

Portfolio Update

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Berkshire Hathaway (BRK-B) added 0.43% last week. Warren Buffett’s bet against hedge funds recently passed its seven-year anniversary — and guess who is winning by a landslide. Mr. Buffett’s S&P 500 fund pick is up 63.5% over the past seven years vs. his competition’s “hedge fund of funds” selection being up nearly 20%. It’s a classic case of “the tortoise vs. the hare” — except the turtle in this scenario is worth roughly $63 billion. BRK-B is a HOLD.

Guggenheim Spin-Off (CSD) added 1.49%. Yesterday’s price spike was enough to push CSD up through its 50-day moving average (MA) after several weeks of trading beneath it. Corporate spin-offs consistently capture investor interest due to the high prospect of appreciation for the “spun-off” company. However, more than the typical number of investors will take notice when eBay spins off its crown jewel in mid-2015, otherwise known as PayPal. CSD rose above the 50-day MA and is now a BUY.

iShares S&P Global Timber & Forestry Index (WOOD) rose 1.80% last week. However, it was yesterday’s promising push above the mighty $54 resistance level that stands out as a possible indicator of future higher prices. This move also represents a new 52-week high. WOOD is a BUY.

Markel Corp. (MKL) added 1.07% over the past five trading days. Although MKL has been somewhat stuck in a trading range over the previous quarter, this position is up 8% in your portfolio. MKL is scheduled to report quarterly earnings on Feb. 12. Positive news could give this position the boost it needs to break definitively above $700 — a price level it has been struggling to break above since its last earnings report. MKL is a BUY.

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Skyworks Solutions Inc. (SWKS) gained another 0.92% last week as it extended gains from its recent positive earnings report into a second week. SWKS also hit another new 52-week high. Skyworks is your play on “the Internet of Everything,” and the company is adding another new thing to its pile of “everything.” SWKS is ramping up its efforts to produce the components that make up media-streaming technology for all our high-definition TVs. As more consumers “cut the cord” on traditional TV transmissions, the demand for media-streaming technology will continue to increase for many years to come. SWKS is a BUY.

Cambria Global Value ETF (GVAL) rose 1.99%. This play on “the cheapest markets in the world” continued to find its footing last week. Although I’ve still not given this position a stop price, GVAL has held steadfast near $19 for several weeks. Down just under 2% since my buy recommendation, GVAL made a convincing jump yesterday as it approached the $20 price level — which is also its 50-day MA. I’ll continue to monitor this position for an eventual stop price recommendation. GVAL remains a BUY.

Latest Special Report

As a courtesy, I want to bring to your attention the newest version of The Top 12 Stocks for 2015, which features three of my top investment recommendations, as well as bonus picks from each of my fellow investment newsletter editors at Eagle. This report and others are available FREE on my website to you.

Nicholas Vardy

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