Volatile Week As Japan and Libya Drive Headlines!

It was a very volatile week of trading as the devastation in Japan and the turmoil in Libya remained front and center. The S&P lost 1.9% for the week, all in all a good recovery after having been down nearly 5% through Wednesday. For the year, the S&P is now up only 1.7% after several weeks of selling pressure, most recently driven by the headlines from Japan and Libya. The devastation from the earthquake and subsequent tsunami has been huge in Japan. Now the Japan crisis is centered on a potential nuclear meltdown that could further trouble this country and the world with longer term economic and energy impacts. The crisis in Libya is escalating as the UN enforces a no fly zone and bombs the country with missiles. Clearly the turmoil in the Middle East creates concern not just in that region, but all over the world. With so much bad news, it is a wonder the market did not fall further. We take some solace in the fact that the market held up fairly well all things con sidered. However, clearly there is significant risk that the market could falter given selling pressures from these external events. We remain bullish for the year, but cautious over the near term and suggest letting the market stabilize before getting aggressive and investing cash from the sidelines. We bought protection in February due to the heightened risks we saw at that time. We sold that protection for a profit this week which helps offset the overall losses we experienced in long positions that fell in sympathy with the market. The value of buying protection can best be seen in our Growth Portfolio where our YTD return has remained steady at February highs despite the sharp selloff in the market since. In fact, the NASDAQ index drop 2.71% for the week, while our Growth portfolio rose 1.5%, a positive delta over 4% in just 5 days. For protection, we bought the Mar 132 SPY Put and sold the Mar 128 SPY Put to reduce the cost of this protection. This protection w orked out perfectly as the SPY index dropped from 132 to 128 just as our position was about to expire. This example shows the value of buying protection, but remember, buy protection when you can at reasonable prices, not when you have to after market volatility explodes.

Momentum And Value (MAV Screen): Breakout Stocks To Buy!

What Stock Tips do we have? Our complete list of watch list stocks is below along with our commentary. We have six stocks on our watch list for purchase, in addition to the stocks we already own. For this week, we are adding one new stock to our watch list, Leucadia National. Leucadia (LUK) is a diversified holding company engaged in a variety of business including manufacturing, oil and gas, gaming, real estate, and medical product development. What investors are really buying is a strong management team that knows how to invest and manage profitable enterprises. Price growth over the past 3 months has been 20% and the stock price has held up especially well over the past few weeks as the market has sold off. The PE registers at just 4.5, extremely low for a company that grew earnings and sales at 251% and 129% respectively over the past 12 months. We should note however that the earnings trend over a longer horizon has been volatile, but would add that the low PE wi ll provide the stock with some downside protection. As a testament to management effectiveness, Return on Equity has been outstanding at 33%! Overall, as we mentioned before, we are still cautious near term, but would view additional declines as a great buying opportunity. Generally speaking, we are not selling this market, but do plan to wait for the market to stabilize before investing all of the cash sitting on our sideline.

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