The Global Bull: Nerves Frayed

Although all but one of our stock positions still is showing a profit, the option positions we opened in late October are firmly in the red. But remember that options can trade up as quickly and as suddenly as they trade down. Here is what I can confirm: none of the fundamentals of the stocks in our current portfolio have deteriorated. The good news is that because the underlying shares of all the companies we recommend are denominated in foreign currencies (though you’ll only see the U.S. dollar-denominated stock or ADR in your brokerage account) the declining dollar actually acts as a brake on share price declines. That offers little comfort, I know, when you have to endure the gyrations of a stock like, say, DryShips (DRYS).

At times like this, it’s worth remembering this rule of thumb: the worse the market feels today, the stronger the rebound. Mr. Market’s mood swings are such that market sentiment can shift overnight. Indeed, it is not unreasonable to expect a sharp rebound — a “technical bounce” in the markets after more than two weeks of such broad-based negative sentiment. That also means that on an “up” day you’ll see some of your holdings shoot up by 3-4% or even 7-8% in very sharp relief rallies. Our current Global Bull Market Alert portfolio is well positioned to benefit from such a rebound. Recall that after markets bottomed in August, we had one of the strongest and fastest run ups in global markets ever. And as I have noted over and over, Q4 has traditionally been the best time to make big profits in our global bull plays.

At the same time, given the broad-based decline across all global markets, I cannot in good faith recommend that you risk your money on any single investment idea. There are times in the market when it is best to stand back and focus on the preservation of capital. This is one of those times.

So here is what I can advise over the next few days: keep an eye on the market, but stick to your stops. And to clarify: once we hit our stop prices on our stocks, that’s also a signal to exit your option positions.

I should add that I do have a pick “in inventory” that I am ready to recommend, once the markets settle. If that happens, keep your eye on your inbox over the next few days.

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