Issue 285
Posted: December 21st, 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 21, 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
We bought the DOW January 103 Call (DIAAY) last Monday morning at 3.40 to play the expected rally into late December/early January. We mentioned that it was a risky trade because the market was not acting as well as we would like it to but were hoping that bullish seasonality and option expiration is strong enough to generate a rally. That is still possible. The failed breakout last weak confirms our worries. 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
STP- Suntech Power- 16.98- has rallied from 12 to resistance at 18-19 in two months and should now pull back. Buy the January 19 Put- STPMS- 2.50- for a move to 15 and then possibly lower. Place a stop loss on the option when the stock closes above 19. Take half profits when the stock is at 15.
ENZ- Enzo Biochem- 5.70- has formed a nice base formation and looks like it wants to break out to the upside. Buy the April 7 1/2 Call- ENZDU- 0.40- for a move back to 7 and then possibly higher. Place a stop loss on the option when the stock closes below 4.50. Take half profits when the stock is at 7.
HITK- Hi-Tech Pharmacal- 27.36- broke up out of an inverted base formation on high volume and has a target of 30-32. Buy the January 25 Call- DBQAE – 3.15- for a move back to 30 and then possibly higher. Place a stop loss on the option when the stock closes below 24. Take half profits when the stock is at 30.
Option Comments
Our CQWAH call option recommendation from last week opened a lot higher than the price in last week’s newsletter so we used the opening price on Monday for portfolio calculations. Half profits were taken the next day when our initial price level (slightly adjusted upward because of the higher open) was reached. The CSRAA call open reached its initial price target so half profits were taken. Three of our options (GDXXX, SMHMA and SKWLH) expired last Friday and we used 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
LEI- Lucas Energy*- 0.47- a small independent oil company. Is selling well below the value of its assets which are worth well over $1 per share so has nice upside potential. Take half profits at 0.75 and place a stop at 0.35.
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
Some of our portfolio positions are doing very well in this choppy market.
Technical Information
Last week we wrote that the end of year seasonality favors a rally into early January and that last week was option expiration week which often has a bullish bias due to shorts and option writers getting squeezed. After successfully testing the November 27 lows on December 9, the market rallied early last week, as expected, to test the December 4 highs, but none of the three indices we follow (DOW, S&P 500 and QQQQ (top 100 Nasdaq stocks)) could make new highs above the December 4 intraday highs (at DOW: 10,517, S&P 500: 1119 and QQQQ: 44.73), even though they got close. That was thus a failed rally. The selloff last Thursday was on a breakaway gap to the downside and on slightly higher volume than the rally the previous several days. Friday’s action was largely influenced by options and futures expiration and Russell indexes rebalancing. 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. A breakout (either up or down) from the trading range we are currently in will determine if that cycle will be a high or a low. A big move in the direction of the breakout is a definite possibility. Call option buying last week was greater than put option but not at the levels typically 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. 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 stocks and bonds. 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 (performance chasing or profit taking). 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 then 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
(Prices taken from Barrons)
FUNDAMENTAL NEWS
The markets were mixed last week as the Dow reversed course and disappointed off a modest 1.4%, while Nasdaq, Transportation and Russell were all higher. Transports made it into the plus column despite meager results from Fedex ( FDX: $ 84.33 ) -3.61 or -4% for the week. However, competitor United Parcel ( UPS: $ 58.08 ) was higher and many other members of the index ignored the poor showing of Fedex. There also was a flight to safety following deteriorating credit conditions in both Austria and Greece and the FOMC said nothing to provide new encouragement as stocks even declined following their comments last Wednesday. The Fed’s policy directive remained the same but they made comments about “winding down some of its ‘facilities” and that the labor market had improved, which augurs for higher future rates.
Just two of the top ten Dow Industry groups were higher: Technology + 1.27% and OIL & GAS just 0.92% higher. Telecomm was the poorest performer, off 2.22%; followed by Consumer Goods down 0.97%; Consumer Services fell a lesser 0.72%. The remaining five fell only slightly: Industrials were off 0.28%; Basic Materials fell 0.22%; Utilities were off 0.20%; Financials down 0.17% and Health Care -0.14%.
This is the week in which the Santa Claus comes to Wall St bringing a short, sweet, respectable rally within the last five days of December and the first two in January. According to the Stock Trader’s Almanac, this has been good for an average 1.4% gain since 1969. The old saying goes, “ if Santa should fail to Call bears may come to Broad and Wall.”
ECONOMIC NEWS
Economic Reports were unquestionably modest compared to the previous week. Initial Jobless Claims were horrible rising for the second consecutive week and PPI was through the roof, much higher than expected. CPI came in modest indicating that profits might be under pressure as wholesalers can’t pass on their costs to the consumer.
However, on the positive side, Industrial production beat expectations.( + 0.8% vs + 0.5% ) November Capacity Utilization rose a little to 71.3% above consensus of 71.1% and better than the October 70.6%. Leading Economic Indicators beat expectations + 0.9% to + 0.7% and the Phily Fed came in at 20.4 vs 16.0.
The Coincident Index rose 0.2% in November looking good relative to the Lagging Index which declined again for the tenth consecutive month.
THIS WEEKS ECONOMIC NUMBERS and Media DATA
Hypothetical Trading Results showed a gain last week of $ 39.00 as the net profit for the year less commissions rose to $ 2,840.00
Legal DISCLOSURE
Rule 17B requires disclosure of payment for investor relations
Princeton Research has received about $ 2,500 per month from Metabolic MTBR and Lucas LEI both marked with an 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 2,600,000 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