The Market Rally Continues; Holding Our Breath for September

It was another solid week for global stock markets. The Dow Jones was up 1.11%, the S&P 500 rose 0.93% and the NASDAQ jumped 0.95%. The MCSI Emerging Markets Index was up 0.44%. All of these markets hit new 52-week highs.

Big gainers in your Alpha Investor Letter portfolio included the Market Vectors Biotech ETF (BBH), which gained 3.06%; Markel Corp. (MKL), which jumped 2.16%; the Guggenheim Spin-Off (CSD), which added 2.12%; and the PowerShares Dynamic Energy Exploration & Production ETF (PXE), which rose 2.08%.

Markel Corp. (MKL) climbed back above its 50-day moving average and is now a BUY. The WisdomTree Japan SmallCap Dividend (DFJ) fell below its 50-day moving average and is now a HOLD.

A whole slew of your positions hit new 52-week highs. These include Berkshire Hathaway Class B Shares (BRK-B), First Trust US IPO Index (FPX), Global X Guru Index ETF (GURU), PowerShares Buyback Achievers (PKW) and ICICI Bank Ltd. (IBN).

I am conflicted about the market’s prospects in the weeks ahead.

On the one hand, despite the rally in the markets, market sentiment remains negative. Looked at alone, this is bullish for the markets.

On the other, we are on the verge of entering September — one of the weakest times of the year.

One of the negative signs in the market is that volume on the New York Stock Exchange has been well below average. That alone is not unusual for a pre-holiday week. Many families take vacation before the start of the school year. The last week in August often also ranks among the lowest turnover periods of the entire year. But more generally, when stocks hit new highs on below-average volume, they tend to underperform a bit longer-term.

On balance, markets currently are overbought over the short term and are due for at least a short-term pullback. After this phase passes, we should be set for yet another traditional Q4 rally.

Portfolio Update

Google Inc. (GOOGL) dipped 1.55% last week. Based upon early Amazon Fire phone sales, it would appear that Google, along with Apple, would remain comfortably at the top in terms of mobile devices. Estimates for July mobile phone sales put Amazon’s new phone at just 0.02% of units sold, or 35,000 units. One of the chief complaints was that the Amazon Fire phone did not include popular Google apps such as Google Maps or Google Drive. GOOGL is a BUY.

First Trust US IPO Index (FPX) gained 1.08%. FPX closed its third week of near-daily gains to hit a new 52-week high yesterday. The initial public offering (IPO) space remains very strong, with August showing remarkable gains. A performance chart listing 10 recent August IPOs shows just one taking a small loss, five gaining 0-10%, three jumping more than 20% and one breaking a 100% gain — all in just two weeks’ time. FPX is a BUY.

Guggenheim Spin-Off (CSD) added 2.12% over the past five trading days. CSD is one of several “smart beta” plays in your portfolio. This one tracks corporate spin-off activity. Like the other funds of its kind, this exchange-traded fund (ETF) has notched strong recent gains, adding 6.5% in just the last three weeks. CSD is a BUY.

Market Vectors Biotech ETF (BBH) gained 3.06%. I recommended BBH during the late 2013 biotech boom, and it roared higher in your portfolio — only to suffer an unprecedented correction in early 2014. However, biotech has been in a strong recovery cycle since the correction broke in April, and BBH is currently just a few cents shy of its pre-correction 52-week high. If you bought BBH since it returned to a BUY in June, you have been rewarded handsomely — collecting far better than the position’s listed 35% current gain. BBH remains a BUY.

PowerShares Dynamic Energy Exploration & Production ETF (PXE) added 2.08%. Although PXE has been a victim of unwarranted negative energy market conditions, this position is now back in the black and just under its 50-day moving average. PXE’s correction seems well in the past, and this position appears to be a leading gainer as energy markets recover. PXE is a HOLD.