Issue 281
Posted: November 23rd, 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 23, 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
Last week Monday we bought the DOW December 104 put (DIAXZ) at the open at 2.70 to play the expected pullback into early December. Place a stop at half the cost of the option (1.35). 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 should have been 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
SRS- Double Inverse Commercial Real Estate ETF- 8.91- will go up when the market pulls back. Has formed a small rounding bottom and looks ready to move up. Buy the December 8 Call- SKWLH- 1.20- for a move to 11 and then possibly higher. Place a stop loss on the option when the ETF closes below 8. Take half profits when the ETF is at 11.
ANF- Abercrombie & Fitch- 39.73- has rallied from 32 to 42 in a month and looks like it wants to pullback. Buy the December 41 Put- ANFXQ- 2.75- for a move back to 37 and then possibly lower. Place a stop loss on the option when the stock closes above 43. Take half profits when the stock is at 37.
Option Comments
Five options (QCLWX, SKWKJ, FEWKR, CKOWB and DZGKK) expired this past Friday and we used closing prices (or the last bid price) on Friday for portfolio calculations. Four of the five trades were profitable. Our SLVXR put option was stopped out for a small loss when our tight stop was hit.
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
CHBT- 14.97- China-Biotics- A Chinese drug manufacturer growing at 30% plus and selling at less than 10x next year’s earnings estimates. Has good support in the 12-13 area. We will buy it for a move back to the 18-19 area. Place a stop at 11 and take half profits at 18. Ideally buy it on any pullback to the 13 support.
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 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 make a slightly higher high last week, especially since last week was option expiration week which quite frequently has a bullish bias since shorts and option writers often get squeezed. We also wrote that the mid-November cycle, which was originally expected to be a low, would 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 16/17 at DOW: 10,438, S&P 500: 1114 and QQQQ: 44.65. 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 a large 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, when the indices made higher highs early last week, the momentum indicators made lower highs which are divergences that are typically seen at tops. Last Thursday the short-term advance/decline oscillator gave a sell signal. Call option buying increased early last week but is still no where near levels seen at tops yet. Closes below the November 12 lows at DOW: 10,171 and S&P 500: 1085 (the QQQQ has already closed below the November 12 low) would be the first indication that the selloff was a progress. We have a short term cycle in early December so it is now likely that the market made a high on November 16/17 and now sells off into early December. A close above the November 16/17 highs would negate this scenario and indicate that another leg up was in progress. 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 big unknown is if the massive amount of liquidity created by the Fed will keep on being poured into hard assets such as gold and oil and into stocks, creating what appears to be a bubble. Once this performance chasing money (by money managers who have lagged the market) stops going into these assets then a very sharp correction is likely. Fund managers who have done well so far this year might decide to protect their profits by selling or buying puts. It will be interesting to see which scenario wins out. 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 1085, then 1020-1029, then 992, then 978 and then 966-968 while resistance is at 1114 for the QQQQ: support is at 43.28, then 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 44.65 and for the DOW: support is at 10,171, then 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 10,438.
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 16/17 (the low on November 2 was probably too early for the cycle low). There is a short term cycle in early December (plus or minus a few days) 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
The major indices began the week with some decent gains, but faded a bit as the week wore on to close out this pre-Thanksgiving week of action mixed. For the week, the Dow was up 0.46%, the Nasdaq was down 1%, while the S&P 500 was off by just 0.2%. The DOW barely eked out a gain for a sixth session out of the last seven although the dollar steadied and the rallies were very modest and short-lived.
Just 4 of the 10 Dow Industry groups were higher led by Health Care up 1.50%, followed by Basic Materials up 1.16%. Telecommunications were up 0.62% and Consumer Goods + 0.33%; The remaining six groups were all lower. Financials -0.39%; Industrials were off 0.44%; Utilities -0.50%; Consumer Services down 0.63% followed by Technology – 1.34% and Oil and Gas – 1.35%.
Earnings remained solid. 17 S&P 500 companies posted results out of which 11 were better; 2 remained unchanged and 4 missed expectations. Dell disappointed investors reporting just 0.23 vs 0.28 expected. However, many of the retailers had surprised with Target ( TGT: $ 47.45 ) -$1.54, Limited Brands ( LTD:$ 17.17 ) -$0.92 , TJX ( TJX: $ 38.65 ) down $ 0.33; Sears Holdings ( SHLD: $ 72.66 ) -$ 1.88 Gap ( GPS: $ 21.66 ) -$0.76 all beating expectations, yet down on the week. That may spell grim tidings for the retail sector, lower on good news ahead of Black Friday, the beginning of holiday shopping.
In political news many congressional leaders are blaming Treasury Secretary Geithner for the economic morass. Tim Geithner’s grilling by a Congressional economic committee was so heavy it showed their lack of patience and understanding of the current economic morass. One Congressman even said to Geithner, “the public has lost all confidence in your ability to do your job.” These meetings are usually a whole lot more lighthearted, so the more confrontational approach speaks volumes. It means that Congress is getting the riot act from folks back home who are feeling the worst economic squeeze since the Great Depression. Unemployment continues to rise, and any bounce in the real economy seems to many voters to be wishful thinking at best. At worst, voters are starting to get angry about the growing realization that Wall Street and the bankers were at the front of the line when it came to who received the biggest chunk of bailout money once the financial crisis turned into a bona fide economic crisis. American voters, especially the ones out of work, are wondering; “where’s MY bailout?”
One Democrat Congressman even called on Geithner to step down, pointing out that America needed a sound economic growth policy instead of a bailout that would allow all of the big banks to continue “gambling” with America’s capital. It got fairly heated in that hearing, and Geithner even fired back that it was not his or the Obama Administration’s fault. Geithner blamed Congress for “the legacy of crises they have bequeathed to this country.”
ECONOMIC NEWS
Retail sales were positive up 1.4% for October beating the 0.9% consensus on better auto demand. Housing Starts were a disappointment plummeting 10.6% to 529K units from 592K. The market had expected an increase to about 600K.
The week’s jobless claims were still above 500,000, and we also heard news on Friday that unemployment levels rose in 29 states last month. States with the highest joblessness now include Michigan at 15.1%, Nevada at 13.0%, Rhode Island at 12.9%, and California at 12.5%. This is why we saw Congress FINALLY standing up to Geithner and the “Financial Powers That Be,” and asking some tough questions. The only problem with this scenario is what if Obama does fire Geithner or if Geithner resigns. That could really rattle the markets in a big way.
THIS WEEKS ECONOMIC NUMBERS and Media DATA
Hypothetical Trading Results showed a loss last week of $146.00 per single unit to decrease the net gain to $ 2,245.00
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.
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