News reports out of Europe have held markets in a well-trodden trading pattern over the past several months. Positive headlines regarding Europe’s debt-crisis lift stocks one day, and then bad news knocks them down the next. This pattern held over the past week.
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Markets sold off sharply over last week’s holiday-shortened week, but rallied back impressively on Monday and Tuesday. The NASDAQ Composite index opened this week by surging 3.5%, ending a seven-session slide — its longest retreat since October 2008. Likewise, the S&P 500 index rallied 2.9% — also snapping a seven-day skid.
Last week’s sell-off, followed by this week’s bounce, was a wash for global markets. You saw this in your Alpha Investor Letter portfolio, as well, with many of your positions trading flat for the week. You did hit your stop prices in the First Trust NYSE Arca Biotech Index (FBT) and iShares Taiwan ETF (EWT).
Market Vectors Russia ETF (RSX) was the top-performing position last week, up 5.54% as the price of oil rose. MSCI South Korea Index (EWY) rose 3.88%, while iShares MSCI Hong Kong Index (EWH), Market Vectors Indonesia Index ETF (IDX) and MSCI Malaysia Index (EWM) all posted roughly 2% gains.
MSCI Malaysia Index (EWM), Market Vectors Russia ETF (RSX) and MSCI South Korea Index (EWY) all snuck above their 50-day moving averages last week and are back to BUYs. This is in addition to your position in Berkshire Hathaway (BRK-B), which continues to outperform the market.
“To Rally, or Not to Rally” — that is the question weighing heavily on investors this week. The traditional year-end rally is still a possibility — especially since markets were as oversold as they were prior to the brutal sell-off in early August. The 1,200 price level of the S&P 500 Index is an important line-in-the-sand. Markets tried desperately to breech it three times during August and September — finally conquering it in October. A solid move above this level will be a significant “vote of confidence” for traders, and may signal the beginning of a “year-end rally” over the next few weeks. That said, trading conditions continue to be extremely challenging, as not a single global stock market is in the plus column for 2011.
It has been a busy week for me here in London already. I met with Francis Fukuyama, author of the bestseller “The End of History” on Monday night, which I detailed in this week’s Global Guru. I also saw former U.N. Ambassador John Bolton at Westminster (the British Parliament) yesterday and he offered a stark reminder of why the United States has no choice but to stay engaged with unstable (future) nuclear powers like an Iran. As Bolton put it: “With the Soviets, the threat of ‘Mutually Assured Destruction’ was a deterrent. With the Iranians — and their beliefs about the afterlife — it’s an incentive.”
Sobering words, indeed…
Portfolio Update
WisdomTree Japan SmallCap Dividend Fund (DFJ) ended the week nearly even, gaining 0.52%. The strengthening yen has been a headwind for DFJ lately. However, the corporations that comprise DFJ are weighted heavily in industrials and technology — cash-rich corporations that often see future dividend hikes. DFJ is a HOLD.
Las Vegas Sands Corp. (LVS) was unchanged for the week. Although the Chinese economy may be slowing, growth in Macau’s gaming sector continues at a record pace. LVS is a HOLD.
ProShares UltraShort FTSE China 25 (FXP) dipped 0.94%. ProShares, the provider of the FXP exchange-traded fund (ETF), announced Tuesday that none of its equity ETFs would pay any 2011 capital gain distributions. This means ProShares is doing an excellent job of keeping gains in your pockets, and out of politicians’ pockets. FXP is currently a HOLD.
MSCI South Korea Index (EWY) jumped 3.88% over the past five trading days. EWY made strong gains over the past two sessions on positive U.S. economic data. EWY is a BUY.
MSCI Malaysia Index (EWM) gained 2.16%. U.S. President Barack Obama visited Indonesia last week and took time to meet with Malaysian leaders, as well. The recent launch of the Trans-Pacific Partnership (TTP) “free-trade agreement” will boost economic prosperity in the Pacific Rim region for years to come. EWM is a BUY.
Market Vectors Russia ETF (RSX) spiked 5.54%. As oil rises, so goes RSX. In addition to its sensitivity to oil prices, RSX is currently experiencing a large surge in bullish options activity. RSX is a BUY.
iShares JPMorgan USD Emerging Markets Bond (EMB) slid 0.44% last week. Offering a better yield than many traditional domestic bond funds, EMB also profits in the face of a falling U.S. dollar. EMB is just under its 50-day moving average and is a HOLD.
Market Vectors Indonesia Index ETF (IDX) gained 1.60%. The government of Indonesia signed a new $600 million “green prosperity” partnership agreement with the United States on Nov 19. This agreement was designed to “use natural resource management and clean energy technologies to accelerate economic growth and poverty alleviation” in the region. IDX is just under its 50-day moving average and is a HOLD.
Gold Miners ETF (GDX) held nearly flat, posting a 0.46% gain over the past week. GDX just took a bounce off of the $55 price level. During the course of 2011, GDX has touched or run slightly below $55 ten times. This tendency has served as a major support level, with GDX posting a comeback every time. GDX is a HOLD.
iShares Singapore ETF (EWS) dipped 0.45%. EWS currently is trading just above $11.00, close to its two-year low of $10.28. In addition, EWS’ $11.00 price level is directly at the “shoulders” of a recent “reverse head and shoulder” technical pattern that formed last month. Such a pattern generally signifies solid support for a stock’s price and signals a sustained positive move going forward. EWS is a HOLD.
Berkshire Hathaway (BRK-B) gained 1.09%. Berkshire Hathaway spent two days below its 50-day moving average last week, but made a strong move back above it to remain a BUY.
Listed Private Equity ETF (PSP) added 0.39% over the past five trading days. This position allows you to place bets alongside some of the best investors in the world. Bouncing very near its recently tested 52-week low, PSP is a HOLD.
iShares MSCI Hong Kong Index (EWH) rose 1.79%. A handful of large initial public offerings (IPOs) in Hong Kong are bringing the market back to life. EWH is a HOLD.
Freeport McMoRan Copper & Gold Inc. (FCX) moved up 0.94% last week. FCX jumped 6.27% Monday alone on reports that a labor strike at FCX’s mine in Peru had ended. FCX is just a few cents under its 50-day moving average and is a HOLD.
