Issue 280
Posted: November 16th, 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
November 16, 2009 Market Strategies Guide To Successful Trading
We give great entries
Trading Options are a timely event , Since we can only report
weekly, Your Own Money Management may be more timely to
Take your Profits/Losses
INDEX OPTION RECOMMENDATIONS
Several weeks ago we recommended to buy the DOW November 102 Put (DIAWX) (bought at 3.25) to play an expected pullback. Half profits were taken when the DOW hit 9,800 (got 4.75). We placed a stop on the remaining half at 2.00 and that stop was hit on November 11.
We will now play DOW puts again since we expect a pullback into early December. Buy the DOW December 104 put (DIAXZ). We will use Monday’s opening price for portfolio calculations. Place a stop at half the cost of the option. Take half profits at DOW 10,000.
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 this rally into mid-November. Take profits on a selloff into early-December. For those who have no put options to protect your portfolio we recommended the following options, especially on any rally: the DOW December 100 puts (diaxv) or the December 103 puts (diaxy) and the QQQQ December 42 puts (qqqxp) or December 44 puts (qqqxr).
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
GDX- Gold Miners ETF- 49.78- has rallied from 41 to resistance in the 50 area in two weeks so is overbought and looks like it wants to pullback. Buy the December 50 Put- GDXXX- 2.95- for a move to 46 and then possibly lower. Place a stop loss on the option when the ETF closes above 53. Take half profits when the ETF is at 46.
SMH- Semiconductor ETF- 25.69- has rallied from 24 to resistance at 26 in two weeks and looks like it wants to pullback. Buy the December 27 Put- SMHXA- 1.70- for a move back to 24 and then possibly lower. Place a stop loss on the option when the ETF closes above 27. Take half profits when the ETF is at 24.
Option Comments
We took nice half profits on our QYGLG call option position when the stock hit our initial target. We were stopped out of our remaining half of our ANFWP put option position for a tiny net overall profit. We should have taken the profit on that half position two weeks ago when we had a nice profit. We got stopped out of our NZAWA put option when our stop was hit. Again, we should have taken profits, when we had them, two weeks ago. In future we will be more aggressive. One of last weeks option recommendations, the LFCXO put option, opened last Monday right near our stop price so we never took the position. This week is option expiration and we will hold our November options until expiration and use closing prices 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 October 23, 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
DOG- 53.46- Inverse DOW ETF- based on our cycles the market should top this week and pullback into our next cycle in early-December. We will play this expected pullback with the DOG. Take half profits at 56. Place a stop at 52.
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 added another 2 ½% percent position to our GCHT half position at 2.91. The stock closed at 3.80 so we already have a nice profit. We will hold our portfolio stocks during the expected correction. We expect them to hold up well.
Technical Information
We wrote in last week’s letter that the market could rally a bit higher last week and that it was possible that the mid-November cycle, which was originally expected to be a low, could invert to a high (cycle inversions do happen occasionally). That is what appears to have happened with the indices making new recovery highs on November 11 at DOW: 10,341, S&P 500: 1106 and QQQQ: 44.16. The rally from the November 2 lows (at DOW: 9,679, S&P 500: 1029 and QQQQ: 40.64) came from an extremely oversold condition with excessive pessimism and went further than we expected. However, the rally does not appear to be the start of another leg up but just an oversold bounce. The main problem with the market is that the broad averages such as the Russell 2000 and the Value Line index (neither of which is even close to making new recovery highs) are badly lagging the large-cap multi-national companies and thus the large-cap indices. Also, only about a third of the DOW stocks are making new recovery highs so only a hand full of stocks have pulled the major averages to these new highs. This almost always happens at tops. Call option buying increased last week but is still no where near levels seen at tops yet. It is thus possible that the market stays up at these levels a bit longer (or even makes a slightly higher high), especially since this week is option expiration week which quite frequently has a bullish bias since shorts and option writers often get squeezed. We have a short term cycle in early December so it is now likely that the market makes a high in mid-November (instead of a low) and then sells off into early December. The November 2 lows now become key support for the bullish case. It is likely that these lows will be tested, if not broken, by early December. Support below the November 2 lows 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 in early December (plus or minus a few days) could end up being the low of the correction (depending how oversold the market gets and on the put/call ratio). 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 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 1020-1029, then 992, then 978 and then 966-968 while resistance is at 1106 for the QQQQ: support is at 40.64- 40.72, then 39.02, then 38.44, then 36.84-37.23 and then 34.30 while there is resistance at then 44.16 and for the DOW: support is at 96.79, then 9,430, then 9,253, then 9,116, then 9,000 and then 8,580-8,610 while there is resistance at 10,341.
CYCLES
We had a cycle due in mid October (plus or minus a few days) and a high came in on October 21. The cycle after that one is an intermediate cycle in mid-November (plus or minus a week) and it now appears to have inverted to a high on November 11 or a high this week (the low on November 2 was probably too early for the cycle low). There is a short term cycle in early December which now looks like it will be a low (and could be the end of the correction). After this cycle there is a cycle in late December/early January (expected to be a high).
Market Laboratory – Weekly Changes
FUNDAMENTAL NEWS
All ten Dow Jones Market Industry groups were higher for a second week led by Basic Materials again up 3.88% below the 5.89% last week, yet still well ahead. Technology was second up 3.36% followed by Consumer services, up 2.78%; Financials rose 2.43%; Industrials 2.33%; Consumer Goods rose 2.30%; Health Care 1.89%; Telecomm + 1.66% and utilities 1.08% and last Oil and Gas barely up 0.21%.
The DOW gained a fifth session out of the last six with most of its gain last Monday as the dollar index lost 1.1% and made a new low beaching the $ 0.75 mark and trading down to 0.7477 on Wednesday. The markets remain transfixed on the dollar as the main trading impetus.
In monetary policy news, the G-20 meeting leaders pledged to keep aid flowing until the recovery was assured which helped gold and kept the dollar under pressure. Gold reached $ 1123.40 on Thursday continuing its momentum begun earlier in the week.
THIS WEEKS ECONOMIC NUMBERS and Media DATA
Hypothetical Trading Results showed a loss last week of $290.00 per single unit to decrease the net gain to $ 2,391.00
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