Issue 284
Posted: December 14th, 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
December 14, 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
The successful test of the November 27 lows on December 9 suggests that the market will rally into early January. Also, this week is option expiration which often has a bullish bias on prices. We will try to play this expected rally with calls although it is a risky trade since the rally this past Thursday and Friday left a lot to be desired ( see below under technical ). Buy the DOW January 103 Call (DIAAY). We will use Monday’s opening price for portfolio calculations. Take half profits at DOW 10,650. Place a stop at DOW 10,230 and if that level is reached buy the DOW January 103 Put (DIAMY).
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-November. Take profits on any selloff into mid-late December. For those who have no put options to protect your portfolio we recommended the following options, especially on any rally: the DOW February 100 puts (dianv) or the February 103 puts (diany) and the QQQQ February 42 puts (qqqnp) or February 44 puts (qqqnr).
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
KLAC- KLA-Tencor- 35.75- has rallied from 31 to 36 in two weeks and appears to have formed a small top formation and should now pull back. Buy the January 37 1/2 Put- QJRMY- 2.55- for a move to 34 and then possibly lower. Place a stop loss on the option when the stock closes above 38. Take half profits when the stock is at 34.
AMED- Amedisys- 40.62- has broken up out of a base formation and looks like it wants to go higher. Buy the January 40 Call- CQWAH- 2.65- for a move back to 44 and then possibly higher. Place a stop loss on the option when the stock closes below 37. Take half profits when the stock is at 44.
Option Comments
We took the remaining half profits of our ANFXQ put option at the open last Monday for a nice profit. We took half profits on our CATML put option and our ZQWAC call option when our initial price levels were hit last week. Three of our options (GDXXX, SMHMA and SKWLH) expire on Friday and we will hold them until expiration.
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
LINC- Lincoln Educational Services- 21.27- provides post-secondary educational services and it is selling at around 10 times 2010 estimated earnings growing at 15-20 % a year. LINC Has made a higher low and should now move up to at least 23 at which time we will take half profits. Place a stop at 19.
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 took our remaining half profits in our TPI position last Monday for a nice profit.
Technical Information
Last week we wrote that we had a short term cycle in early December (plus or minus a few days) and it is possible that the market made a low on November 27 (with intraday lows at DOW: 10,231, S&P 500: 1083 and QQQQ: 42.90) or made a high on December 4 (with intraday highs at DOW: 10,517, S&P 500: 1119 and QQQQ: 44.73). The next cycle is late December/early January and it is expected to be a high if the early December low was made on November 27 or it could be a low if the market made a high on December 4. On Wednesday December 9 the market tested the November 27 lows and the intraday lows that day (at DOW: 10,235 and S&P 500: 1085) were just above the November 27 lows so it was a successful test. The rally the next day left a lot to be desired; it was on low volume and the Nasdaq had over 500 more declining stocks than advancing stocks on a day the DOW was up 68 points and on Friday the DOW was up 65 points but the Nasdaq and QQQQ were down.
The action on both days shows that the advance is concentrated in a narrow group of stocks. The main problem with the market still is that the broad averages such as the Russell 2000 and the Value Line index are badly lagging the large-cap multi-national companies and thus the large-cap indices. Call option buying last week was greater than put option but not at the levels seen at tops. On the other hand, some other sentiment indicators are at levels seen at tops. The action this week will tell us which way the market wants to go. The end of year seasonality favors a rally into early January. Also, this week is option expiration week which often has a bullish bias due to shorts and option writers getting squeezed. Closes below the November 27 lows would indicate that the high is in, or closes above the December 4 highs by all three indices would indicate that another leg up into our cycle late December/early January was in progress. The November 2 lows at DOW: 9,679, S&P 500: 1029 and QQQQ: 40.64 now become key support for the intermediate bullish case. 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. A close below the November 2 lows would indicate that a more significant pullback is taking place.
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 (the gold bubble appears to have burst and the dollar has started rallying). Once this performance chasing money (by money managers who have lagged the market) stops going into stocks 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 stocks or buying puts (if they decide not to sell some of their holdings). 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 1114-1119 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 44.65-44.73 and for the DOW: support is at 10,231, then 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 10,517.
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 was an intermediate cycle in mid-November (plus or minus a week) and it inverted to a high on November 16/21 (the low on November 2 was probably too early for the cycle low). There was a short term cycle in early December (plus or minus a few days) which could have been a low on November 27 or a high on December 4. After this cycle there is a cycle in late December/early January which could either be a low or a high depending on what the early December cycle ends up being (a high or a low). Seasonal factors favor it being a high. The next cycle after that one is a short term cycle in mid-January. The next intermediate cycle is in early March (which could be the end of this cyclical bull market).
Market Laboratory – Weekly Changes
FUNDAMENTAL NEWS
It was a neutral week with just two big events; a modestly large down opening Tuesday followed by a higher opening Thursday, the remainder of the week quite slow and uninteresting. Tuesday’s lower opening was the result of a threat by Moodys to downgrade the triple A credit ratings of both the U.S. and U.K. if they fail to show they can pay down their deficits.
Utilities led the way once again up 3.43%, leading all Dow Industrial Groups, as investors are selling government treasuries and other very low yielding securities for higher yields. In addition the Barron’s Confidence Index also rose again, now crossing the 70 mark to 71.0 the highest in several months.
All together five groups were higher. Telecommunications rose 2.33%; Consumer Services gained 1.75%; Health Care was up 0.72%, Basic Materials + 0.10%. The remaining five groups were all lower the worst being financials, off 1.24%; Oil and Gas was the second worst performer, down 0.87%; Consumer Goods fell 0.60%. Technology lost 0.24% and Industrials 0.20%.
Crude prices fell 7.4% and Unleaded Gasoline 6.8%, coming under pressure following ample supply increases making good news for the Christmas driving season.
ECONOMIC NEWS
Economic Reports were unquestionably favorable better than prior months and even beating all the expectations: Consumer Credit for October fell to -3.5B from -8.8B; Wholesale Inventories rose 0.3%; The Trade Balance for October fell nicely to -$32.9B from-$35.7B; Treasury Budget for November was much improved to – $120.3 from -$176B; Nov Export Prices rose much more than Nov Import Prices ( + 0.7% to + 0.4% ); Nov Retail Sales improved by 1.3% besting the 0.6% consensus and a positive 1.1% last month; Ex – Autos was even better at 1.2% vs expectations of +0.4% and October’s flat reading. Business Inventories rose 0.2% for October besting estimates of -0.2%.
Finally, December Michigan Sentiment rose unexpectedly to 73.4 beating expectations of 68.8 and the previous reading of 67.4.
THIS WEEKS ECONOMIC NUMBERS and Media DATA
Hypothetical Trading Results showed a gain last week of $ 341.00 as the net profit for the year less commissions rose to $2,801.00
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