Issue 271
Posted: September 14th, 2009 | Author: WMS
Market Strategies
Covering Investing Success Strategies For
Stocks – Bonds – Interest Rates – Natural Resources – Currencies – Venture Capital – Gold
A Publication of Princeton Research, Inc. (www.PrincetonResearch.com)
Contributing Staff: Michael King and Dr. Jan Vandersande
September 14, 2009 Market Strategies Guide To Successful Trading
INDEX OPTION RECOMMENDATIONS
We are now in our intermediate cycle time frame of late August/early September (plus or minus a week) in which we expect a market high. The high could have come in last week on September 11 or will come in this week. At the moment we only recommend put options on the DOW when it trades below last week’s Thursday’s low of 9,476. We recommend the October 97 put (DAVVS). If that does not happen this week then we will buy put options next week.
For investors it has continually been recommended that some puts are held to protect one’s portfolio (portfolio insurance) against sharp market sell-offs. New and/or additional positions can be bought on the expected rally into late August/early September. For those who have no put options to protect your portfolio we recommended the following options, especially on any rally: the DOW October 96 puts (davvr) or the October 98 puts (davvt) and the QQQQ October 42 puts (qavvp) or October 44 puts (qavvr).
For those of you who do not buy puts to protect your portfolio, there is an ETF that is the inverse of the DOW. The symbol is DOG and goes up when the DOW goes down and down when the DOW goes up.
Stock Option Recommendations
New Recommendations
ENZ- Enzo Biochem- 5.56- has formed a nine month long bottom formation and looks ready to break out to the upside (with a close over 5.75) for a nice move. We will play it with a cheap out of the money option for a potential big gain. Buy the January 7 1/2 Call – ENZAU – 0.25 – for a move to 7 and then higher. Place a stop loss on the option when the stock closes below 4.50. Take half profits when the stock is at 7.
UUP- U.S. Dollar ETF- 22.81- has dropped sharply and there are only 4% bulls so is at a bearish extreme. We will try to play a good bounce. Buy the October 21 Call- UUPJV- 1.85- for a move back to 23.50 and then possibly higher. Place a stop loss on the option when the ETF closes below 22. Take half profits when the ETF is at 23.50.
GG- Goldcorp- 41.16- we have played this one with mixed results but will try again. Has rallied from 34 to 43 in a month so is overbought and puts are timely to play a pullback. Buy the October 42 ½ Put- GAGVV- 3.35- for a move back to 39 and then lower. Place a stop loss on the option when the stock closes above 44. Take half profits when the stock is at 39.
Option Comments
Last week’s APVIN call option recommendation on Tuesday opened near our initial take half profits level so the position was not taken. On Wednesday the stock and option traded down to our recommended price levels so the position was taken. On Thursday the initial take half profit level was hit so half profits were taken. Our ENZJZ call option hit the initial profit levels so half profits were taken. Two of our put option positions (KCQUT and CDTVI) hit our stop levels so were closed out. Seven of our option positions expire on Friday and we will hold them until expiration and will use closing prices on Friday for portfolio calculations.
Previous Week’s Recommendations
- All options count for 5% each for model portfolio calculations.
- When the option has doubled sell half the position.
- Stop Loss protection is offered with each trade.
- The cost of the option is the asking price (or the price between the bid and ask, whichever is more realistic)
- at the close the previous Friday or at the open on Monday.
- The options will be followed until closed out.
Note: Previous closed out option positions can be found in the June 29, April 20, February 23, 2009, January 19, 2009, September 15, 2008 and November 24, 2008 newsletters.
New Stock Recommendations
UPP- U.S. Dollar ETF- 22.81- the dollar has dropped sharply recently and with only 4% bulls (daily futures traders sentiment) is oversold and at extreme bearish sentiment (which is bullish). Buy the UPP for a quick trade. Take half profits when the ETF is at 24.00. Place a stop loss at 21.00.
Model STOCK PORTFOLIO
- Each stock is allocated a 5% share of the portfolio (unless otherwise indicated).
- We recommend a 10% position in ENZ and MTBR.
Note: Previous closed out positions can be found in the April 20, 2009 letter.
Model Portfolio Comments/Changes
We took the remaining half profits in FXI and AMED and took half profits in TPI at the open last Tuesday. We took some nice profits. We will hold the remaining positions since they are special situations and we believe they will not go down much during the expected correction.
Technical Information
We have been looking for a market top in our intermediate cycle due now in late August/early September (plus or minus a week) and last week we thought the high came in on Friday August 28. The rally this past week broke above those highs this past Thursday and Friday morning making intraday day highs at DOW: 9,650, S&P 500: 1048 and QQQQ: 41.62 . This rally was not unexpected since, as we wrote last week, the market was still slightly oversold and there was still considerable put option buying the previous week. We are at the tail end of our intermediate cycle and there is a short term cycle on September 14/15 (today/tomorrow) so based on cycles we expect a top now. There are again momentum divergences (as we had at the August 28 short term top) with the indices making higher highs but various momentum oscillators making lower highs. Several sentiment indicators show too much bullishness (which is bearish) while the option sentiment indicators are mixed. Total (index and equity) call option buying is not at the levels typically seen at market tops but equity call options by themselves are at the levels seen at tops. This week is option expiration week which usually has a bullish bias because the shorts and option writers often get squeezed. So it is possible that the rally continues until the end of the week. Initial support is at the September 2/3 intraday lows at DOW: 9,253, S&P 500: 992 and QQQQ: 39.02. The support below those levels is at the August 17 lows at DOW: 9,116, S&P 500: 978 and QQQQ: 38.44. Breaking the September 2/3 lows would be the first indication that a larger pullback was in progress and would likely indicate that the cycle top is in. The upside has to be given the benefit of the doubt as long as the September 2/3 lows hold. Our next cycle is in mid-October and we believe at the moment that it will be a low. Any larger pullback is expected to eventually test and possibly break the intraday lows made on Wednesday July 8 at: DOW: 8,087, S&P 500: 869 and QQQQ: 34.30. The parameters to watch are thus very clear and let the support and resistance levels govern your trading and your stops.
We are in a secular bear market that appears to be far from over and we expect lower prices later this year or next year. However, every bear market has several good rallies that can last from a few weeks to many months and are definitely worth playing. We are in one of those rallies (which could even be called a cyclical bull market in a secular bear market) now.
The support and resistance levels to watch now are: S&P 500: support is at 992, then 978, then 966-968, then 927-932 and then 869 while resistance is at 1048 for the QQQQ: support is at 39.02, then 38.44, then 36.84-37.23, then 34.30 and then 32.95 while there is resistance at 41.62, then 42.00 and then 44.00 and for the DOW: support is at 9,253, then 9,116, then 9,000, then 8,580-8,610, then 8,087 and then 7,939 while there is resistance at 9,650 and then 9,800.
CYCLES
We had an intermediate-term cycle due in late February/early March (plus or minus a week) and the low came in on March 6/9. The next important cycle was due in late April/early May (plus or minus a week) and a low came in on May 6/8. The cycle following that one was a short term cycle in mid/late May and a triple bottom low came in between May 15 and 26. The next short term cycle was due in mid-June (plus or minus a few days) and a low came in on June 23/24. An intermediate cycle was due in early/mid July and the low came in on July 8. Next there was a short term cycle due in late July and a high came in on August 7. The cycle after the late July cycle is an intermediate cycle due now in late August/early September (plus or minus a week) will be a high, which we originally thought came in on August 28 but now looks like it could have come in on Friday September 11 (or could come in this week). The cycle following this cycle is a cycle in mid October which at the moment looks like it will be an initial low. The cycle after that one is in mid November and could be the final low of the correction.
Market Laboratory – Weekly Changes
FUNDAMENTAL NEWS
It was a short week, but stocks rebounded sharply from the small set-back last week to set new yearly highs. Transports led the way up 5.62% for the week. The Russell 2000 rose 4.05%, the S&P 500, 2.59% and the Dow 1.74%. Eight of the Dow Ten Industry Groups were higher with only Utilities showing a small 0.10% loss for the week while telecomm was unchanged. Oil and Gas rose 4.72%; Basic Materials rose 4.63%; Industrials 4.13%, Technology up 2.89% and Consumer Services 2.57%. Consumer Goods were up 2.37% and Financials 2.32%; Health Care rebounded to show a gain of 1.49%.
JB Hunt ( JBHT: $ 32.00 ) + 2.96 or 10.2% led the way up more than 10% for the week. United Parcel ( UPS: $ 58.80 ) + $ 4.99 or 9.3% and Federal Express ( FDX: $ 77.32 ) + $ 6.46 up 9.3% led the DJ 20 Transportation index catapulting to new yearly highs. Fedex was up to 121.42 March ’07. The DJ 20 Transports topped June’08 at 5,536.57. The Index had fallen all the way down to 2,134.2 by March ’09 and has since rebounded 1.840.33 points, more than a 50% retracement from the all time high. A 61.8% rebound would take the average to 4,237.
Fedex stated that better-than-expected volume in international shipments surprised and as a result is likely to have first quarter earnings of $ 0.58 much better than the $ 0.44 First Call consensus and prior guidance by the company.
The most questionable chart is the one of CSX ( CSX: $ 46.93 ) – $ 1.24, an outside day down Friday, but still up $ 1.64 or 3.6% on the week.
Bonds, Gold and equities were all very strong at the expense of both the dollar and real estate. In the past shopping centers and real estate ventures were competition. Now there are a flood of dollars looking for opportunity. This market letter has been able to make profits while at the same time recommending PUTS to protect portfolios as you should never leave home without some PUTS in your portfolio.
ECONOMIC NEWS
Last week the main economic report was the Fed’s Beige Book, a collection of anecdotal economic data collected from Fed Districts, which is continuing to show that the rate of economic decline is slowing, with even manufacturing showing improvement. They said that other areas such as employment, consumer spending and construction remain weak.
Weekly jobless claims fell slightly by 26,000 jobs to 550K, a little better than the 560K consensus. Continuing Claims declined 159K to 6.088 million. However, the decline in continuing claims is due to workers losing unemployment benefits. Export prices (ex-ag) doubled import prices (ex-oil ) rising 0.8% vs 0.4%. Michigan Sentiment bested consensus estimates of 67.5 by a wide margin surprising at 70.2 vs just 65.7 prior.
THIS WEEKS ECONOMIC NUMBERS AND MEDIA DATA
Hypothetical Trading Results showed a GAIN last week of $583.00 per single unit to increase the net gain to $ 4,349.00
Legal DISCLOSURE
Rule 17B requires disclosure of payment for investor relations
Princeton Research has received about $ 2,500 per month from MTBR with asterisk. MTBR is reviewing a contract which would pay $ 2,500 per month plus some restricted shares. The main principal of Princeton Research has obtained his own shares amounting to 2,500,000 shares.
Princeton Research has received 550,000 restricted shares from BCLE in exchange for investor relations services.
CONTACT
Please Direct All Inquires To:
Mike King
Princeton Research
3887 Pacific Street, Las Vegas, Nevada 89121
Phone: (702) 650-3000
Fax: (702) 697-8944