Issue 282
Posted: November 30th, 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 30, 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
Two weeks ago we bought the DOW December 104 put (DIAXZ) 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
DUG- Inverse Oil & Gas ETF- 12.80- will go up when oil and gas stocks go down and vice versa. Has formed a nice bottom between 12 and 13 and looks ready to move up. Buy the January 12 Call- DZGAL- 1.45- for a move to 14 and then possibly higher. Place a stop loss on the option when the ETF closes below 11.50. Take half profits when the ETF is at 14.
CSR- China Security- 6.21- has been consolidating between 5.75 and 6.50 and looks ready to break out. Buy the January 5 Call- CSRAA- 1.35- for a move back to 7 and then possibly higher. Place a stop loss on the option when the stock closes below 5. Take half profits when the stock is at 7.
Option Comments
We have a nice profit in the remaining half of our QYGLG call option and we will take it 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 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
No new recommendation this week. We will wait for our cycle low.
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 mid-November cycle high appeared to have come in 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. This again happened last week Monday when the DOW made a new intraday high (at 10,495) but no other average confirmed that high. Also, when the indices rallied early last week, the momentum indicators made lower highs which are divergences that are typically seen at tops. Call option buying increased early last week and was near levels seen at tops. Other sentiment indicators are at levels seen at tops. The sharp selloff on Friday was thus no surprise. The Dubai debt crisis provided the spark. The market made intraday lows on Friday November 27 (at DOW; 10,231, S&P 500: 1083 and QQQQ: 42.90) which were below the November 19/20 intraday lows at DOW: 10,256 and S&P 500: 1086 and QQQQ; 43.28 but closed above those lows. Closes below Friday’s lows would be the first indication that the selloff was continuing. The market might consolidate or rally early this week since it is the end of one month/beginning of the next month period which often has a bullish bias because 401k and pension money comes into the market. We have a short term cycle in early/mid December so it is now likely that the market made a high on November 16 (Dow on November 21) and now sells off into the December cycle low. A close above the November 16/21 highs would negate this scenario and indicate that another leg up was in progress. The November 2 lows now become key support for the intermediate bullish case. It is possible that these lows will be tested, if not broken, by early/mid 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/mid 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 (could have started Friday November 27). 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 1083-1086, then 1020-1029, then 992, then 978 and then 966-968 while resistance is at 1112-1114 for the QQQQ: support is at 42.90, 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 16/21 (the low on November 2 was probably too early for the cycle low). There is a short term cycle in early/mid 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). The next cycle after that one is a short term cycle in mid-January.
Market Laboratory – Weekly Changes
(Prices taken from Barrons)
FUNDAMENTAL NEWS
Monday was the best day for the markets as it followed through from the previous Friday led by a weaker dollar. The remaining indexes of the holiday shortened week were all down. Just 4 of the 10 Dow Industry groups were higher led by Telecommunications, up 3.22%; followed by Health Care up 1.37%, Utilities gained 0.93% and Oil and Gas + 0.66%. The remaining six were all lower with the worst being Financials off 2.15%; Basic Materials were second worst falling 0.59% followed by Technology off 0.41%. The remaining were closer to unchanged as Consumer Goods lost just 0.03%; Consumer Services 0.04% and Industrials off just 0.08%
Global markets were jolted in recent days following the threat by a state-owned company in Dubai to default on its debt, as investors reawakened to the risks posed by mammoth debts in developing economies. Dubai World, an investment company weighed down by real estate losses, asked creditors this week to accept delayed repayment. That led investors to doubt the financial reliability of nations even beyond the Arab world, deflating stocks in emerging markets by 2.1 percent.
Officials in Washington and European capitals continued to closely monitor financial markets Friday, worried that the Dubai debt problem would spiral into a global crisis. But those fears dissipated during the day as markets in the United States fell modestly, with the Standard & Poor’s 500-stock index off 1.7 percent. European markets gained Friday, following steep losses Thursday, when American markets were closed for the Thanksgiving holiday.
ECONOMIC NEWS
Existing Home Sales for October surged up 10.1% on 6.1 million homes beating the consensus of 5.7 million as first time home buyers rushed to take advantage of the tax credit, which provided much of the incentive.
Consumer Confidence as reported by the Conference Board for November jumped to 49.5 from an upwardly revised 48.7 in October. This number caused a slight upward blipuntil it was further understood as the present index fell from 21.1 to 21.0 and is at its lowest level since February 1983. The labor differential worsened to -46.6 from -45.9 as might be expected since jobs were perceived harder to get in November.
3rd QTR GDP was revised lower from 3.5% to 2.8% as Personal Consumption Expenditures declined to a rise of 2.9% from the previous estimate of 3.4%. More importantly the revised rise in imports was much heavier than the gains in exports. Imports rose 20.8% up from the previous estimate of 16.3% while exports were revised up from 14.7% to 17.0%. The only component of revised GDP that was positive was government spending which rose from 7.9% to 8.3%.
THIS WEEKS ECONOMIC NUMBERS and Media DATA
Hypothetical Trading Results showed no change last week as the net gain for the year less commissions remained $ 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