Locking in Gains as Market Consolidates

Markets closed another positive week, with the Dow Jones up 2.04%, the S&P 500 rising 1.49% and the NASDAQ gaining 1.47%. The MCSI Emerging Markets Index soared 3.45%.

Big gainers in your Bull Market Alert portfolio included the iShares MSCI Emerging Markets (EEM), up 3.45%, and Drew Industries Incorporated (DW), which gained 1.24%.

Drew Industries Incorporated (DW) and Dycom Industries, Inc. (DY) each hit a new 52-week high.

Keep an eye out for your stop of $86.20 on Drew Industries (DW) to make sure you book a double-digit percentage gain on this stock even if it pulls back this week.

Also, raise your stop price in Dycom Industries (DY) to $91.00 — the current consensus target price on the stock — to ensure you lock in some gains.

The market has had a tremendous bounce after the brief post-Brexit sell-off.

As such, market sentiment has reached extremely bullish levels.

The CNN Fear & Greed index hit 90 this past Thursday, and closed the week at 89.

As a contrarian indicator, “extreme greed” on this index is a bad sign. Any time the market gets above 80, the market is overbought and you can expect the market to be near a short-term top. The market has come too far, too fast.

Also, from a fundamental standpoint, let’s not forget that the S&P 500 as a whole is in an earnings recession, so there is little real “profit juice” that will be driving the market forward in the weeks ahead.

As such, I expect stocks to consolidate their recent gains, and the overall U.S. stock market to pull back in the coming week or two weeks.

While we have been successful in our rifle shot small-cap stock strategy that we’ve been focused on recently, this is a good week to hold off on a new a new Bull Market Alert recommendation.

However, I am a researching a potential new Bull Market Alert recommendation for next week.

Portfolio Update

iShares MSCI Emerging Markets (EEM) moved 3.45% higher last week. Since the June 23 Brexit vote, emerging markets have been surprisingly strong. China and India are both up an average of 5.5%, Russia has gained nearly 7.25% and Brazil is up almost 10%. This ascent is reflected in EEM’s chart as the fund pushed up past a long-term resistance level of $35 last week to move into new recent highs. EEM is a BUY.

Healthcare Services Group, Inc. (HCSG) fell 5.78% last week after a slight earnings miss. HCSG met its $0.26 earnings per share estimate, but missed on revenue figures. Although revenues rose 9% year over year, the $386.6 million figure did not meet the estimated $392.3 million mark. HCSG announced a dividend of $0.18375 per share, payable on Sept. 23 to holders of record on Aug. 19. HCSG fell below the 50-day moving average (MA) and became a HOLD.

Drew Industries Incorporated (DW) gained 1.24% and hit a new 52-week high last week, only to pull back slightly later in the week. However, you were able to sell all of your remaining DW October $75 option calls for a hefty 141% gain, just as the pullback began. DW is expected to announce earnings on Aug. 4 before markets open. DW remains a BUY.

Spire, Inc. (SR) fell 2.12%. Despite last week’s pullback, SR shares have jumped 27.35% over the past 52-weeks while the S&P 500 index has only gained 2.06% for the same period. SR will report earnings on Aug. 3 before markets open. SR is a BUY.

B&G Foods Inc. (BGS) is the latest addition to your portfolio, and moved 1.95% lower over the past week. Earlier this month, BGS announced plans to consolidate operations based in South Carolina to North Carolina. BGS will report earnings on July 28 after markets close, and consensus estimates call for earnings per share of $0.46 on revenue of $316.56 million. BGS is a BUY.

Sincerely,

Nicholas A. Vardy