Issue 277
Posted: October 26th, 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
October 26, 2009 Market Strategies Guide To Successful Trading
INDEX OPTION RECOMMENDATIONS
Last we recommended to buy the DOW November 102 Put (DIAWX) at last Monday’s opening (which was at 3.25) to play an expected pullback. Place a stop at half the cost of the option (1.65). Take half profits at DOW 9,800. We have a small profit on this 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 should have been bought on the rally into mid-October. 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 (davwt) and the QQQQ November 42 puts (qqqwp) or November 44 puts (qqqwr).
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
COH- Coach- 34.22- we have played this one before and made money so we will try again. Appears to have made a double top at 35 so should turn down. Puts are thus timely. Buy the November 36 Put- CKOWB- 2.30- for a move to 32 and then possibly lower. Place a stop loss on the option when the stock closes over 37. Take half profits when the stock is at 32.
DUG- Inverse Oil & Gas ETF- 12.36 – goes up when oil & gas stocks go down and vice versa. Appears to be forming a small rounding base and looks ready to break out to the upside. Buy the November 11 Call- DZGKK- 1.40- for a move to 14 and then possibly higher. Place a stop loss on the option when the ETF closes below 11. Take half profits when the ETF is at 14.
Option Comments
We were stopped out of the DAQKI and CATWK put options when our stops were hit. We took half profits on our FIQWB put option when our initial target was reached. We have a really nice profit on the remaining half position (300% plus) and we will take this profit at the open on Monday.
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 August 24, July 20, June 29, April 20, February 23, 2009, January 19, 2009, September 15, 2008 and November 24, 2008 newsletters.
New Stock Recommendations
GCHT- 2.40- GC China Turbine- a Chinese company that manufactures 2- bladed wind power turbines. Has run up a lot already but looks like it can go a lot higher. We will take a half position (2 ½ %) now and another half on any pullback. Place a stop at 1.50. Details about the company can be found at www.gcchinaturbine.com. The stock is speculative but they do already have orders for $125 million and are expecting more.
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 were stopped out of our IDCC position when the stock hit our stop. An adverse patent ruling sent the stock down. We will hold our portfolio stocks during the expected correction. We expect them to hold up reasonably well.
Technical Information
We wrote in last week’s letter that we have a short term cycle due now in mid-October (plus or minus a few days) and that it looked like a high could have come in on Thursday October 15 at DOW: 10,063, S&P 500: 1097 and QQQQ: 43.29 but last week Wednesday October 21 the market made higher intraday highs at DOW: 10,120, S&P 500: 1101 and QQQQ: 43.82 (still within our cycle time frame). That Wednesday the market had a bearish outside day key reversal down (making a higher high but closing down on the day). Then on Thursday the market rallied again rather than continuing lower as usually happens after a key reversal but on Friday it reversed down again. The short term momentum oscillator is now oversold and actually gave a repeat sell signal last Wednesday but it is not oversold enough yet to signal a bottom. Momentum oscillators made lower highs when averages made intraday higher highs last Wednesday which is a bearish divergence. Call option buying slowed down some what last week but still exceeded put option buying. The put/call ratios are now only just below the levels usually seen at tops. Some other sentiment indicators are at levels typically seen at tops. Initial support is at the October 22 intraday highs at DOW: 9,917, S&P 500: 1074 and QQQQ: 42.79 and then at the October 13 intraday lows at DOW: 9,815, S&P 500: 1066 and QQQQ: 42.06 (October 9). Closes below the October 13 levels would confirm that the cycle top is in. But until that happens the trend is up. Closes above the October 21 intraday highs would indicate that there is more upside before a meaningful pullback. Important support is at the October 2 intraday lows at DOW: 9,430, S&P 500: 1020 and QQQQ: 40.72. The support below those levels is at the September 2/3 lows at DOW: 9,253, S&P 500: 992 and QQQQ: 39.02. A close below the October 2 lows would indicate that a more significant pullback is taking place. The cycle after the mid-October cycle is mid-November which at the moment we believe will be the final low of the correction. There is still the possibility that under performing and under invested hedge and mutual fund managers pour money into the market so not to miss out on the rally. The fiscal year for many funds ends on October 31 so the rally can keep on going until then so that they can show how clever they were. 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 is called a cyclical bull market in a secular bear market) now which could last into March/April next year based on cycles.
The support and resistance levels to watch now are: S&P 500: support is at 1074, then 1066, then 1020, then 992, then 978 and then 966-968 while resistance is at 1101 for the QQQQ: support is at 42.79, then 42.06, then 40.72, then 39.02, then 38.44, then 36.84-37.23 and then 34.30 while there is resistance at 43.82 and then 44.00 and for the DOW: support is at 9,917, then 9,815, then 9,430, then 9,253, then 9,116, then 9,000 and then 8,580-8,610 while there is resistance at 10,120.
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 was a cycle in early/mid September (plus or minus a week) and a high finally came in on Wednesday September 23. The cycle following that cycle is a cycle due now in mid October (plus or minus a few days) which is a high that could have come in on October 21. The cycle after that one is in mid November and we believe that it will be the final low of the correction. The cycle following this one is late December/early January and is expected to be a high.
Market Laboratory – Weekly Changes
FUNDAMENTAL NEWS
It was a highly volatile week, both earnings and dollar dominated. In the end, bulls were disappointed by markets trading decisively lower even with good news. At times when it appeared the greenback was poised to break below the $ 0.75 mark, stocks seemed to get a bid; otherwise the week was clearly earnings dominated with markets tiring of better results which did not translate into gains.
Nine of the ten Dow Industry Groups were lower: Health Care was the worst off 1.75%, followed by Industrials off 1.45%, Basic Materials lost 1.34%; Oil and Gas -1.27%; Utilities – 1.17%; Consumer Services lost 1.00%; Consumer Goods -0.97%; Financials off 0.94% and Telecomm off 0.46%. The lone winner was Technology, led by Amazon and Microsoft, which gained 0.89%.
Early in the week, the Dow closed at a new recovery high, 10.092.19, while Crude Oil closed above $ 81 for the first time in a year. It appears that Gold, Oil, Stocks are all influenced a weak dollar, which is dependent on just how long the Fed will accommodate at artificially low rates to spark some economic growth and encourage business investment.
Investors are no longer impressed by bottom line earnings surprises as 74% of companies have bested revenues and 63% beat earnings expectations. Investors are not surprised and greeting these results modestly with a few exceptions with the likes of Apple and Amazon. Companies besting estimates immediately following the news are up 0.92%, but if they disappoint the floor caves in and they are off a much more significant 4.32%.
Transportation stocks were particularly hard hit as there were hints of some anti-trust investigations into price fixing as well as some disappointment in earnings. Burlington Northern Santa Fe ( BNI: $ 79.12 )- $ 7.27 or 8.4%. Union Pacific ( UNP: $ 57.73 ) – $ 5.80 was worse falling 9.1%. Kansas City Southern ( KSU: $ 26.80 ) – 1.86 or 6.5%. CSX fell 7.4%, NSC 4.6%, CP 1.6%; Land Star ( LSTR: $ 36.64 ) lost just 1.4%. It will be challenging for them to be able to hold their 50 and 200-day moving averages which remain even lower.
FedEx and UPS in the short haul /overnight business more related to the Amazon success, also fell hard from much higher levels. The trucking business is in desperate shape as they are resisting but will be continually forced into cutting prices to get hauls. Prices are heading below even those of a depressed last year. Coal –utility demand remains weak as stockpiles grow, off 10% on revenues. Agriculture revenues are off 21%.
ECONOMIC NEWS
Economic reports for the previous week were a mixed bag of positives and negatives. Leading Economic Indicators for September rose 1.0%, posting positive growth for the sixth consecutive month. Eight of the ten components were higher. Just building permits and average work-week were lower. Coincident Indicators were flat, but the ratio over Lagging Indicators which were down 0.3% improved for the eighth consecutive month.
The PPI showed no inflation at -0.6% with the Core at -0.1%. Even Sept Existing Home Sales were much better at 5.57 M vs 5.35 consensus and 5.09 in August.
The bad reports were September Building Permits, Housing Starts and Initial Claims for the week ending 10/17. Initial claims surprisingly jumped to 531K, following the last two declining weeks. Building Permits declined to 573K compared with 580K for August abd a consensus of 595K. Housing Starts were a meager 590K vs a consensus of 610K.
The continued recovery will depend on forward consumer demand, unknown at this time as the past numbers were aided by government programs. Both employment and housing will continue to be a drag on the economy while forward growth heavily depends on exports.
THIS WEEKS ECONOMIC NUMBERS AND MEDIA DATA
Hypothetical Trading Results showed a loss last week of $350.00 per single unit to reduce the net gain to $ 2,754.00
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