Issue 272
Posted: September 21st, 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 21, 2009 Market Strategies Guide To Successful Trading
INDEX OPTION RECOMMENDATIONS
We are now at the tail end of our intermediate cycle time frame of late August/early September (plus or minus a week) and our short term cycle September 14/15 (plus or minus a few days) in which we expect a market high. The high could have come in last week on Thursday September 17. Buying put options should now be low risk since bullishness is at an extreme and the market is overbought. We recommend the October 100 put (DIAVV). We will use the opening price on Monday for portfolio calculations. Place a stop at half the cost of the option.
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 November 100 puts (diawv) or the November 98 puts (dawvt) and the QQQQ November 42 puts (qqqvp) or November 44 puts (qqqvr).
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
CSR- China Security- 7.46- has been consolidating between 6 and 8-9 for five months now and looks like it wants to breakout to the upside. We will play it with a cheap at the money option for a potential big gain. Buy the October 7 1/2 Call- CSRJU- 0.50- for a move to 8.50 and then higher. Place a stop loss on the option when the stock closes below 6.50. Take half profits when the stock is at 8.50.
XHB- Homebuilders ETF- 16.10 – has rallied fro 11 to over 16 in two months and should now pullback. Buy the October 17 Put- XXJVQ- 1.25- for a move back to 15 and then possibly lower. Place a stop loss on the option when the ETF closes above 17. Take half profits when the ETF is at 15.
EDU- New Oriental Education- 78.46- we have played this one with mixed results but will try again. Has rallied from 67 to 79 in a month so is overbought and puts are timely to play a pullback. Buy the October 80 Put- EDUVP- 3.90- for a move back to 76 and then lower. Place a stop loss on the option when the stock closes above 81. Take half profits when the stock is at 76.
COH- Coach- 33.63- we have played this one with mixed results but will try again. Has rallied from 28 to 34 in a month so is overbought and puts are timely to play a pullback. Buy the October 35 Put- CKOVI- 2.25- for a move back to 31 and then lower. Place a stop loss on the option when the stock closes above 35. Take half profits when the stock is at 31.
Option Comments
Seven of our option positions expired on Friday and we have used closing prices on Friday for portfolio calculations. We made a very nice profit on the remaining half of our APVIN call option position (about 250% profit on that half). Last week’s ENZAU call option recommendation hit the initial price level and we took half profits (made 300% profit in one week!!!!).
Some of our put option positions ended up losing money even though we had nice profits on some of them 2-3 weeks ago. Once our website site is up and running (hopefully very soon) we will post intraweek sell signals when we have nice profits we want to lock in.
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
No new recommendation this week.
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
One of our portfolio stocks (ENZ) did very well last week. ENZ that got as high as 7.25 and looks like it wants to go higher. It can be bought on any pullback. We will hold our portfolio stocks during the expected correction. We expect them to hold up well.
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/or in a short term cycle due September 14/15 (plus or minus a few days). Last week we wrote that the rally could continue into the end of last week since last week was option expiration week which usually has a bullish bias because the shorts and option writers often get squeezed. The rally has done exactly that and it is possible the high was made last week Thursday at the intraday highs at DOW: 9,854, S&P 500: 1075 and QQQQ: 42.66. The week after an up option expiration is usually a down week so selling is expected this week. Also, the short term oscillators are overbought and sentiment has turned very bullish (which is bearish). Put/call option ratios have dropped to the very low levels usually seen at market tops. There are still 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. Does this mean that the market has to go down immediately? No, it does not. There are apparently still a lot of mutual fund and hedge fund money managers who are under invested and need to get into the market so not to miss more of the rally and hence not under perform. The key is, will this rally chasing money overwhelm the negative technical and sentiment indicators?? This week will tell us. Initial support is at the September 14 lows at DOW: 9,536, S&P 500: 1035 and QQQQ: 41.21 and then 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 14 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 14 lows hold. Our next cycle is in mid-October and we believe at the moment that it will be a low. This cycle could end up being a high if the underinvested money managers keep on pushing the market higher into the end of their fiscal year (end of October). The cycle after that one is mid November which at the moment we believe will be the final low of the correction. 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 1035, then 992, then 978, then 966-968 and then 927-932 while resistance is at 1075 for the QQQQ: support is at 41.21, then 39.02, then 38.44, then 36.84-37.23 and then 34.30 while there is resistance at 42.66 and then 44.00 and for the DOW: support is at 9,536, then 9,253, then 9,116, then 9,000, then 8,580-8,610 and then 8,087 while there is resistance at 9,854.
CYCLES
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 Thursday September 17 (or could come in early this week at the latest). The cycle following this cycle is a cycle in mid October which at the moment looks like it will be an initial low (unless underinvested money managers keep pushing this market higher, in which case it will be a high). The cycle after that one is in mid November and could be the final low of the correction.
Market Laboratory – Weekly Changes
FUNDAMENTAL NEWS
Stocks continued the rally making the fourth week up out of the last five. All ten Dow Jones Industry Groups showed improvement: Basic Materials led the way up 5.46% followed closely by Financials + 4.29%. Utilities gained 3.52%; Industrial rose 3.63%; Oil and Gas rose 2.93%; Consumer services +2.54%; Consumer Goods up 1.92%; Technology rose 1.49%; Health Care rose 0.40% and Telecommunications + 0.03%.
Some of the earnings reports were quite negative to expectations: Oracle ( ORCL: $21.62 ) -$ 1.24 or -5.4%: Best Buy ( BBY: ( $ 37.90 ) – $ 1.86 -4.7% and Fedex ( FDX: $ 76.13 ) – 1.15 -1.5%. They performed poorly in a good market week. It will be interesting to see how they perform in a neutral-negative week.
Treasury auctions continue with another $ 112B this week which include $ 43 B 2-Yr Notes Tuesday; $ 40 B 5-Yr Notes Wednesday and $ 29B 7-Yr Notes Thursday.
The Dow is now up 1,044 points on the year but still off 1,588 points from a year ago today.
The S&P 500 is now up 165 points on the year, 412 from the low in March 2009, which is about 61.8% a ‘Fibonacci’ number.
ECONOMIC NEWS
The beleaguered manufacturing sector got a boost from both the Empire State and Philly Fed numbers clearly signaling that sector is improving. Empire September numbers came in at 18.88 vs estimates of 15 and 12.08 in August. Just 4 months ago in May the number was negative ( -4 which was in improvement from the low March number of -12 ) which shows how far the economy has improved with smaller work forces, increased productivity and a little stimulus money from Uncle Sam..
The Phila Fed numbers for September improved to + 14.1 vs just 8.0 consensus and 4.2 in August a huge turn-around from -22.6 last May and -24.4 in April.
Capacity Utilization for August was 69.6% a little better than the consensus of 69.0 which was also the same as July. August Industrial Production rose 0.8%, 0.2% better than consensus but below July’s 1.0% increase. Most of the increase came from food, beverage and tobacco production, while petroleum and coal production slipped 0.5% despite the increase in prices for oil.
There was also positive commentary from Fed Chairman Bernanke who stated that “the recession very likely is over.” Then, that same day reports circulated that Warren Buffett had returned to the market, which he confirmed the next day stating that while the economy “hasn’t gotten worse” it also hasn’t “gotten much better” over the past three months, but that he does not expect a ‘double-dip’ recession.
Retail Sales beat estimates 2.7% vs expectations of 1.9%. Without auto sales, Retail Sales still bested estimates coming in at 1.1% vs 0.4% expected. New Housing Starts increased 1.5% in August to 598,000 units about as forecast. Single Family Home Starts declined 3.0%.The sector continues to face problems from rising foreclosure rates, higher unemployment and lower pricing.
This week all eyes will be on the FOMC Wednesday to see if there are any changes in their interest rate policy or forward looking commentary.
THIS WEEKS ECONOMIC NUMBERS AND MEDIA DATA
Hypothetical Trading Results showed a LOSS last week of $620.00 per single unit to reduce the net gain to $ 3,729.00
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
mike@princetonresearch.com
www.PrincetonResearch.com