Locking in Double-Digit Percentage Gains… and Remembering our Veterans

Markets across the globe bounced strongly last week, with the Dow Jones up 2.13%, the S&P 500 rising 2.23% and the NASDAQ recovering 3.44%. The MCSI Emerging Markets Index jumped 2.70%.

Big gainers in your Bull Market Alert portfolio included Dycom Industries, Inc. (DY), which rocketed 16.57%; Healthcare Services Group, Inc. (HCSG), which jumped 4.53%; and the iShares MSCI Ireland Capped (EIRL), which added 3.75%.

The iShares MSCI Ireland Capped (EIRL) moved back above its 50-day moving average, and is now a Buy. Healthcare Services Group, Inc. (HCSG) also just hit a new 52-week high.

Finally, raise your stop in Dycom Industries, Inc. (DY) to $78.75 to lock in at least a 10% gain in the stock.

Small investors have become apathetic towards the stock market. Based on a model that incorporates five different measures of retail trader sentiment, sentimenTrader.com recently noted that investor appetite is in the bottom 2% of all its readings in nearly the last 30 years. This lack of speculative activity among small investors has stayed steady since July 2015, despite most major stock indexes trading near multiyear highs. In fact, based on these five measures, the current negative sentiment was exceeded only by the depths of the financial crisis in October 2008.

Although I think there are many reasons to be cautious about the U.S stock market in the coming months — earnings recession, high valuation and weak seasonality — negative sentiment among investors has become so extreme that it is hard for this not to be a positive sign for stocks.

That said, I will continue to focus on very specific stock opportunities based on strong fundamentals and technical analysis in the coming weeks. This rifle-shot approach to stock picking is crucial in a market that today is trading at levels it first saw in February of 2015.

I will be back with a new Bull Market Alert recommendation next week.

In the meantime, I join you each Memorial Day in remembering the sacrifices of our veterans, including my uncle Alex Victor Vardy, who died in 1970 in Vietnam while fighting for his adopted home country, the United States of America.

Portfolio Update

iShares MSCI Emerging Markets (EEM) rose 2.70% last week. EEM traded down, falling below its 50-day and 200-day moving averages (MA) at the beginning of this month. Fast-forward to today and EEM just passed back above the 200-day MA. With the proper emerging market tailwinds blowing once again, and EEM just below the 50-day MA, EEM is likely to break above this line this week and continue higher in the weeks to come. EEM is a BUY.

iShares MSCI Ireland Capped (EIRL) added 3.75%. Your bet on Ireland leapt above the 50-day MA one week ago, breaking above recent price resistance as well. James Bullard, president of the Federal Reserve Bank of St. Louis, said on Monday, May 30, that global markets seem “well-prepared” for any near-term Fed interest rate increases, softening fears on the impact of any Fed moves. Ireland’s economy stands as one of the success stories in Europe, despite being hit very hard in the post-2008 economic downturn. EIRL moved to a BUY.

Healthcare Services Group, Inc. (HCSG) jumped 4.53% last week to become the second-biggest gainer in your portfolio. In addition to pushing to a new 52-week (and all-time) high, HCSG also moved above its primary resistance level at $38.50, a mark it last visited in October 2015. HCSG is a BUY.

Avista Corporation (AVA) added 0.33%. S&P Global Ratings affirmed its rating on AVA last week, placing the company’s issuer credit rating at “BBB” and its outlook as “Stable.” The ratings firm also released the following statement, “The stable outlook on Avista reflects our expectation that over the next two years the company will continue to effectively manage regulatory risks, fund capital spending such that leverage does not meaningfully increase, preserve adequate liquidity and maintain comparable financial performance.” AVA is a BUY.

Dycom Industries, Inc. (DY) rocketed 16.57% for its first week in the portfolio on the back of its positive earnings report. Dycom Industries reported earnings of $1.08 per share vs. the consensus estimate of $0.75. Revenue was $664.6 million vs. an estimated $597.8 million — a 35% jump year over year. DY also released earnings guidance for next quarter of $1.45 to $1.60 per share on revenue of $750 million to $780 million. Raise your stop to $78.75 to lock in at least a 10% gain in the stock. DY is a BUY.

Sincerely,

Nicholas A. Vardy