Betting on a Rebound in Volatility

The relentless rise in the U.S. markets abated last week, even as the markets closed a very strong February.

The Dow Jones was down 0.04%, the S&P 500 fell 0.27% and the NASDAQ gained a mere 0.15%. The MCSI Emerging Markets Index also eked out a gain of 0.17%.

Big gainers in your Bull Market Alert portfolio included the Rubicon Project, Inc. (RUBI), which added 7.54%; Euronet Worldwide (EEFT), which jumped 3.99%; HDFC Bank Ltd. (HDB), which rose 3.96%; and The Bank of Ireland (IREBY), which gained 2.79%.

You were stopped out of Palo Alto Networks, Inc. (PANW) for a gain of 10.03%. As a reminder, whenever we stop out of a stock, we sell the related option position as soon as possible.

Several of your positions hit new 52-week highs. These included the ProShares Ultra Nasdaq Biotechnology ETF (BIB), MasterCard (MA), HDFC Bank Ltd. (HDB) and the WisdomTree Europe Hedged Equity Fund (HEDJ).

I am also recommending that you raise your stops in several positions.

Raise your stop in the ProShares Ultra Nasdaq Biotechnology ETF (BIB) to $148.55 to lock in a 30% gain. Raise your stop in the Rubicon Project, Inc. (RUBI) to $18.11 to lock in at least a 10% gain.

This week’s Bull Market Alert recommendation is an example of the kind of trade I am more likely to provide in my higher-end Triple Digit Trader trading service. But with the timing particularly good for this “non-traditional,” non-stock trade, I wanted to provide it to you as well.

February was quite the month for markets, and it was characterized by two things.

First, stocks soared, with the S&P 500 gaining 5.62% over the past month.

Second, volatility dropped, which is typical for those times when the market makes big gains.

Today, through sophisticated exchange-traded notes (ETNs) like the iPath S&P 500 VIX ST Futures ETN (VXX), there is a way to profit from the inevitable rebound in volatility. Specifically, VXX provides exposure to the S&P 500 VIX Short-Term Futures Total Return Index.

Here’s why I expect market volatility to rebound — and VXX to rise — in the coming weeks.

As last week’s flat performance of the U.S. indexes suggests, stocks are getting tired. After such a strong run, I expect a pullback in the markets. And as markets pull back, volatility rises. Put another way, betting on rising volatility is a hedge on the overall market.

So buy the iPath S&P 500 VIX ST Futures ETN (VXX) at market today, and place your stop at a tight $23.00.

If you want to play the options, I recommend the April $28 calls (VXX150417C00028000), which last traded at $2.37 and expire April 17.

Portfolio Update

The Bank of Ireland (IREBY) gained 2.79% last week. As I reported in last week’s update, IRE’s ticker symbol is now IREBY, and this should already be reflected in your investment account. Hold on to your position for now. I will be recommending a course of action on this holding prior to the date of April 22, when it ceases trading. IREBY is a HOLD.

WisdomTree Japan Hedged Equity ETF (DXJ) rose 0.79%. The rally in this currency-hedged bet on the Japanese economic recovery continued last week. Goldman Sachs made positive comments on Japan last week, saying it was the only large global market to see an increase in earnings expectations over the past few months. Goldman Sachs also increased its bet on Japan. DXJ remains a BUY.

Euronet Worldwide (EEFT) jumped 3.99% over the past five trading days. Euronet continued a strong bounce upwards from its 50-day moving average (MA) last week after dipping to this line in reaction to its recent earnings pop. Monness Crespi Hardt also initiated coverage on EEFT recently, setting a rating of “Buy” and a price target at $65 per share. This represents a potential 15% appreciation from last Friday’s close. EEFT is a BUY.

The Rubicon Project, Inc. (RUBI) added 7.54% last week after reporting positive quarterly earnings results. Earnings were $0.25 per share, handily beating the $0.03 analysts’ consensus estimate. This represents a 79% year-over-year increase as well. Revenues came in at $41.8 million vs. the $39.4 million analysts’ estimate and were up 49% year over year. RUBI is a BUY.

HDFC Bank Ltd. (HDB) rose 3.96%. Dipping shortly after my recommendation, HDB consolidated for a few weeks and then recovered admirably. Now back at its 52-week high and all-time high, HDB is well positioned to challenge this level. HDB has remained comfortably above its 50-day MA since joining the Bull Market Alert portfolio and is a BUY.

WisdomTree Europe Hedged Equity Fund (HEDJ) gained 1.51%. This hedged play on Europe has been on the rise every day except one since joining your portfolio in early February. It also closed Friday at yet another 52-week high. Volume remains strong and steady, in the four to five million shares traded range, signaling that investors are accumulating this fund in an aggressive fashion. HEDJ is a BUY.

Newly Updated Special Report

As a courtesy, I invite you to view the newly updated version of The Top 12 Stocks for 2015, which features three of my top investment recommendations from the recent Orlando MoneyShow, as well as bonus picks from each of my fellow investment newsletter editors at Eagle. This report and others are available FREE on my website to you.

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