Global stock markets pulled back this past week, with the Dow Jones dropping 0.88%, and the S&P 500 falling 0.50%. The MCSI Emerging Markets Index also corrected 1.04%.
Nevertheless, you had several strong performers in your Bull Market Alert portfolio which bucked the markets’ weakening uptrend.
Your leveraged bet on biotechnology ProShares Ultra NASDAQ Biotechnology (BIB) ended the week up 3.26%. The National Bank of Greece (NBG) rose 2.42%. And Standard Pacific Corp. (SPF) — your bet on the U.S. housing recovery — rose 2.30%. Mortgage REIT American Capital Agency Corp. (AGNC) also crossed back above its 50-day moving average (MA) and moved to a Buy. Finally, Seadrill Limited (SDRL) reported blowout earnings overnight. So look for that stock to move up sharply in today’s trading.
All this sounds like good news. And it is. Your Bull Market Alert portfolio has some very solid bets on some of the top performing sectors in the U.S. and global stock markets — housing, biotechnology, retail and 3D printing, as well as offshore drilling.
That said I am worried that stock markets have reached a short term peak. And here’s why.
First, the markets are overbought by all of the medium term technical indicators that I like to look at. When this happens, more often than not, we are on the cusp of a multi-week correction. Second, the market’s recent rise, steady as it has been, has occurred on low volume. It lacks the kind of conviction of a lasting rally. Finally, seasonality is not favorable for stocks. September has a reputation for being a tough month for stocks. And it may prove to be even more so after the unexpected summer stealth rally.
So how best to deal with the markets uncertain short term prospects? Well, I have tightened your stops on a number of your positions, in order to lock in some hard-won gains. In particular, I don’t want your big 40% gains in 3D Systems Corp. (DDD) to get away from you. Although I am bullish on the 3D sector, I also know that bullish trends can come to an end quickly in a market downdraft.
Portfolio Update
Bank of Ireland (IRE) lost 2.45% last week. The number of mortgages going into arrears is slowing in Ireland, a bullish sign for the housing market. IRE remains a HOLD.
National Bank of Greece SA (NBG) closed the week up 2.42%. German Chancellor Angela Merkel reaffirmed her personal commitment to keeping Greece part of the euro zone. This is good news for Greece and a positive sign for NBG, which remains a BUY.
Novo Nordisk A/S (NVO) was flat again last week. Novo Nordisk’s Chief Financial Officer, Jesper Brandgaard, recently revealed that 78% of NVO’s profit stems from diabetes care — an area where NVO expects 6% year-over-year growth for as long as the eye can see. NVO is a BUY. Raise your stop to $149.50.
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3D Systems Corp. (DDD) dipped 1.03% over the past five trading days, after hitting a record high earlier in the week. 3D Systems announced Thursday availability of its new ProJet® 5000 3D printer — a large-format model that can print twice as fast as any existing model, and delivers the highest resolution in its class. The new Projet is capable of producing extremely detailed output models measuring up to 21 inches in length. DDD remains a BUY. With this position up a whopping 42.49% since my initial recommendation, raise your stop to $36.50 to protect the bulk of your gains.
Standard Pacific Corp. (SPF) gained 2.30%. Standard Pacific managed to not only breach its $6.50 hard resistance level, but also hit a new two-year high. With the housing sector one of the few in an uptrend in U.S. markets, SPF is a BUY. Raise your stop to $5.90.
Ross Stores Inc. (ROST) inched up 0.60% over the past week. ROST’s performance was somewhat muted this week by a worse-than-expected report from retail competitor Big Lots. ROST will pay a $0.14 dividend this week, on Aug 29. ROST is a BUY. Raise your stop to $66.00.
ProShares Ultra NASDAQ Biotechnology (BIB) rose 3.26%. After several weeks of trading sideways, BIB finally woke up last Wednesday. BIB appears ready to break its all-time $118.29 high. With biotech one of the bets performing sectors in 2012, BIB is a BUY. Raise your stop to $103.00.
American Capital Agency Corp. (AGNC) recovered last week, adding 1.15%. AGNC’s 20-day MA and 50-day MA will likely meet this week. A break above current levels should finally signal the “all clear” traders are looking for, and push this stock higher. AGNC is a BUY.
Seadrill Limited (SDRL) remained flat last week, dipping just 0.29%. SDRL reported blowout earnings this morning, reporting earnings of $1.12 per share, a stunning $0.33 better than consensus estimates of $0.79. SDRL also announced an increase in the ordinary quarterly cash dividend by $0.02 to $0.84. A high yield play with plenty of upside, SDRL is a BUY. Raise your stop to $37.50.