Upping Your Bets on the Japanese Bull Market

Last week was not a great one for global stock markets, with the S&P 500 down 1.01% and the MCSI Emerging Markets Index tumbling 2.71%. Only six markets out of the 37 I track across the globe are in the positive column in April so far. Two of them, Japan and Vietnam, are represented in your Bull Market Alert portfolio. The others are Austria, Poland, Italy and New Zealand. So if you happened to be invested in any of these four markets, pat yourself on the back.

The big gainer in your Bull Market Alert portfolio was the ProShares Ultra MSCI Japan (EZJ), which resumed its upward trend last week by rising 3.14%. Japan is also up another 2.8% overnight, so you may see 5%-plus gains in this leveraged position today.

We had some lousy luck with last week’s pick, Community Health Systems, Inc. (CYH), which started on a negative note, and which I have now moved it to a HOLD. I’ve also moved FleetCor Technologies, Inc. (FLT) to a HOLD due to insider selling. Tighten your stop to $70.25.

As these moves confirm, I’m increasingly concerned about the state of momentum plays in the U.S. stock markets. Last week, 73 stocks in the S&P 500 experienced a buying climax — a longstanding technical measure that simply looks for any week when a stock reached a 52-week high, then reversed to close lower than the previous week. That’s the highest number since May 2011.

According to sentimentrader.com, when this has happened, two weeks later, the S&P managed a positive return after only 6 of 17 times, averaging a return of -0.6%. Even a month later, the index was still negative on average.

So this week’s Bull Market Alert recommendation Sony Corporation (SNE) ups its bet on Japan — one of the few bull markets on the planet at the moment.

As you know, Sony is the once-mighty electronics giant that gave the world flat screen TVs and Sony Walkmans.

Today, Sony has a market cap of a mere $17.2 billion. That compares with Apple’s (AAPL) market cap of $397 billion — making Sony today less than 5% the size of its once smaller rival.

Until recently, Sony’s stock was in even worse shape. Back in early December, Sony actually traded below $10. That was the first time Sony was trading in single digits since 1987 -– a mere shadow of the $150 it commanded at the height of the dot-com boom.

Sony’s stock reached an 11-month high of $18.06 on March 28 on hopes that the company was finally turning around. Shares have risen on news of the departure of Chairman Howard Stringer and the first major release of the PlayStation gaming console since 2006.

Of course, it doesn’t hurt that, in the meantime, the Bank of Japan unleashed the world’s most intense burst of monetary stimulus, and promised to inject $1.4 trillion into the Japanese economy in less than two years.

Finally, on Friday, there was a massive sale of 2,588 July 16 puts for $1.10 in less than nine minutes. The volume was eight times higher than the strike price’s open interest of just 325 contracts before the session began. That means that big bets are being placed that Sony will stay above the $16 strike price through expiration in mid-July and that Sony won’t be declining any time soon.

So buy Sony Corporation (SNE) at market today, and place your stop at a tight $14.50. If you want to play the options, I recommend the July $18.00 calls.

Portfolio Update

Bank of Ireland (IRE) gained 0.59% last week. The Irish government’s deposit guarantee scheme officially ended early last week. This removes a very large “monkey off the back” of Bank of Ireland as the program cost Bank of Ireland $650 million dollars in 2012 alone — a whopping 10% of its entire market capitalization. IRE continues to trade around its 50-day moving average and is now a BUY.

Market Vectors Vietnam ETF (VNM) continued to trade flat last week. VNM remains a bull run waiting to happen. February’s drop from its long-term high, coupled with positive government moves to fortify its markets and overall low valuations, makes the past few weeks of sideways trading appear very positive. VNM will likely kick-start when iShares MSCI Emerging Markets (EEM) begins to recover. VNM is a HOLD.

ProShares Ultra MSCI Japan (EZJ) gained 3.14% last week to hit another new 52-week high on massive volume after Japanese regulators came through with a remarkably aggressive program of quantitative easing. The Japanese central bank began buying government bonds just this morning, sending the Nikkei shooting up yet another 2.80%. Artificially enhanced or not, the Japanese market is making a stellar comeback — and you are along for the ride. EZJ remains a BUY.

FleetCor Technologies, Inc. (FLT) dipped 1.85%. Last week’s dismal jobs report weighed heavily on stocks across the board, and FLT did not escape its share of the negativity. However, FLT has tenaciously managed to stay above its 20-day moving average (20MA) nearly since July 2012. This pullback to the 20MA may be a strong “buy” signal. That said, insider selling in the stock has convinced me to tighten your stop in FLT to $70.25 and move it (temporarily) to a HOLD.

Community Health Systems, Inc. (CYH) fell 5.42% for the past five trading days in what was undoubtedly a lousy start to last week’s recommendation. In a somewhat surprising development, the Centers for Medicare & Medicaid Services (CMS) released a decision on rates last Tuesday that now benefits healthcare insurers in a huge way -– and to the tune of billions of dollars. This caused some of the money that has poured into hospital stocks recently to flow to insurer names last week. The implications of this for hospitals is still uncertain, hence the pullback in CYH. Until the uncertainty settles, I am moving CYH to HOLD.