Issue 273
Posted: September 28th, 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 28, 2009 Market Strategies Guide To Successful Trading
INDEX OPTION RECOMMENDATIONS
Last week we recommended the October 100 put option (DIAVV) to play the expected pullback. We are using the opening price on Monday (3.60) for portfolio calculations. Place a stop at half the cost of the option. Take half profits at DOW 9,500.
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
IDCC- Interdigital Inc- 23.01- appears to have based after dropping sharply and looks ready to move higher so calls are timely. Buy the November 22 Call- DAQKI- 2.25- for a move to 25 and then higher. Place a stop loss on the option when the stock closes below 21. Take half profits when the stock is at 25.
DUG- Inverse Oil & Gas ETF- 14.76 – goes up when oil & gas stocks go down and vice versa. We have played this one before with mixed results but we will try again. Appears to have formed a bottom so calls are timely. Buy the November 14 Call- DZGKN- 1.70- for a move back to 16 and then possibly higher. Place a stop loss on the option when the ETF closes below 13.50. Take half profits when the ETF is at 16.
POOL- Pool Corp- 21.03- appears to be breaking down out of a top formation sp puts are timely. Buy the November 22 1/2 Put- QCLWX- 2.70- for a move to 18-19 and then lower. Place a stop loss on the option when the stock closes above 24. Take half profits when the stock is at 19.
STP- Suntech Power- 15.75- we have played this one with mixed results but will try again. Appears to have formed a small top formation after rallying from 13 to nearly 18 in a few weeks and looks ready to move down again. Buy the November 17 Put- STPWQ- 2.45- for a move back to 14 and then possibly lower. Place a stop loss on the option when the stock closes above 18. Take half profits when the stock is at 14.
Option Comments
Two of our put option recommendations (GAGVV and XXJVQ) reached the initial targets so half profits were taken. Let us know if you need more information on how to execute these trades.
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
IDCC- Interdigital- 23.01- dropped from 32 to 21 last month on an adverse patent ruling, but it is still growing rapidly and is selling at less than 10 times next years estimated earnings. Is thus cheap and could rally nicely. Place a stop loss at 20 and take half profits at 26.
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 7.98 mainly due to a market outperform recommendation by Rodman & Renshaw with a one year target of 14. 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 that was due in late August/early September (plus or minus a week) and/or in a short term cycle that was due September 14/15 (plus or minus a few days). Last week we wrote that the technical indicators were negative (overbought condition and momentum divergences) and the sentiment indicators were negative (too much bullishness and too much call option buying) but on the other hand that there apparently were still a lot of mutual fund and hedge fund money managers who are underinvested and need to get into the market so not to miss more of the rally and hence not under perform, especially with the end of the quarter coming up. We also asked the question: will this rally chasing money (and short covering) overwhelm the negative technical and sentiment indicators?? The key outside day reversal lower (higher high and lower low than the previous day) last week Wednesday September 23 would seem too indicate that the high we have been looking for finally came in and that the technicals and sentiment indicators won out (at least for the moment). The highs made last week Wednesday September 23 were at the intraday highs at DOW: 9,918, S&P 500: 101080 and QQQQ: 43.17. The short term momentum oscillators gave sell signals that day. Put/call option ratios which had dropped to the very low levels usually seen at market tops are starting to increase but are no where near buy signal levels yet. 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 confirm 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. This week is the end of the month/beginning of the new month period which often has a bullish bias because 401k and pension money comes into the market. Also, Wednesday is the last day of the quarter which usually sees mutual fund window dressing and could have a bullish bias if they decide to prop prices up (to show improved performance!!). Hence a rally is likely this week. As long as the September 23 intraday highs are not broken it has to be assumed that the high is in. 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) once the current pullback is over. 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 could test 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 1080 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 43.17 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 9,918.
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 came in on Wednesday September 23. 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
The bears finally had their way as the Dow was actually much weaker than the numbers indicate. Only 3 Dow stocks were up on the week, while 27 were lower. All ten of the Dow Jones Industry Groups were down led by the Oil and Gas Group down 3.64%. Dow Industrials were off 3.25%; Consumer Services – 3.10%; Basic Materials – 2.67%; Utilities -1.45%; Consumer Goods off 1.35%; Health Care 1.17%; Technology -1.08%Financials 1.04%; Telecomm – 0.08%:
The S&P 500 was also very weak as 84% of its stocks were down. The FOMC policy statement did not provide that “spark” that often comes with it and stocks which had been 80 higher closed sharply lower following the comments. They did repeat that economic conditions are likely to warrant exceptionally low fed funds rates for an extended period.
Blackberry ( RIMM: $ 68.91 ) disappointed and the stock collapsed falling 18% on the week even though the company reported an in-line quarter. The disappointment came from their forecast of lower revenues for the third quarter of $ 3.60 billion to 3.85 billion below the consensus of $ 3.92 billion, not much considering the severity of the fall.
General Mills reported very good earnings of $ 1.28 for the first quarter and continues to see strong demand for their products.
Dell announced it would acquire Ross Perot’s company Perot Systems ( PER ) which was valued at approximately $ 3.9 billion.
Treasuries were very strong with the long bond yield falling to the lowest Levels since May The 10-Yr Note yield fell sharply as well as treasuries benefitted from weaker-than-expected economic news.
ECONOMIC NEWS
Both New and Existing Home August Home Sales were below expectations even with the first time homeowner tax break in effect, which if it expires in November, new home sales could decline sharply.
August Durable Goods fell 2.4% much more than the consensus, which expected a small increase. There was a decrease in aircraft orders and weaker than expected growth of 0.4% in the motor vehicles sector. Nondefense Capital Goods excluding aircraft also fell 0.4%. The slow decline is indicative of the negative effects of the recession and have not benefitted from government stimulus.
Jobless Claims fell 21,000 to 530,000 which beat the consensus of 550,000 but the numbers remain elevated and remain a negative.
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