Issue 286
Posted: December 28th, 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 28, 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
New Stock Recommendations
HITK- Hi-Tech Pharmacal- 27.05- a generic drug manufacturer. Is selling at only around 14 times this year’s estimated earnings and is growing rapidly so has nice upside potential and very little downside. Take half profits at 34 and place a stop at 23.
Market Laboratory – Weekly Changes
( Prices taken from Barrons )
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.
FUNDAMENTAL NEWS
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.”
All ten Dow Industrial sectors advanced although on light volume. Basic materials led up 4.85% followed by Technology + 3.53%; Telecommunications rose 2.48%; Oil and Gas 2.47%, and Financials rose 2.31% reversing their losing ways of the past couple weeks. Consumer Services gained 2.05%; Industrials 1.96%; Consumer Goods 1.90%; Health Care gained 1.67% and Utilities were last but still on the plus side up 0.71%. It was a fine beginning to the Santa Claus rally.
ECONOMIC NEWS
GDP for the third quarter was disappointing at + 2.2% below both the consensus and prior estimate of + 2.8%.
Existing Home Sales for November were much better than expected at 6.54M vs a consensus of 6.25M and the October reading of 6.09M. New Home Sales were much weaker at 355K vs 438K consensus and a prior read 400K. The report went from bad to worse as October was revised lower by 30,000 units. Median prices were better than October by 3.8% to $ 217,400, although down 1.9% from a year ago. The striking downturn in November was due to the perception over the uncertainty of an extension of the first-time homebuyer tax credit. It has now been continued to April 2010 and the presumption is that sales will pick up despite the glut of foreclosures. The housing recovery is fragile and is likely to remain the dark horse for the economy.
Durable Goods Orders + 0.2%, for November were below consensus due to weaker transportation sales, below expectations of +0.5%, but better than the -0.6% for October. Ex-Trans they were much better + 2.0% vs a consensus of 1.1% and -0.7% for October. Non-defense capital goods, excluding aircraft, increased 2.9% following a 2.0% decline in October.
November Personal Income at 0.4% was slightly below estimates of 0.5% but October was revised higher from 0.2% to 0.3%. Core PCE prices which the Fed keys on was benign at 0.0% vs a consensus of 0.1% and October’s read of +0.2%. Inflation has clearly not been a factor as wholesalers are suffering through some higher prices they are unable to pass on to the consumer.
Initial unemployment claims for the week ended December 19th fell 28,000 to 452,000 below the consensus of 470,000 and Continuing Claims for the week ended December 12th fell 5.8% to 465,250. The 4-week moving average for Continuing Claims fell 2.4% to 5.233 Mln. New claims have dropped below 500,000 but remain well above levels found in any of the previous recessions.
INDEX OPTION RECOMMENDATIONS
We bought the DOW January 103 Call (DIAAY) two weeks ago at 3.40 to play the expected rally into late December/early January. 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. Those who bought puts on the recent rally should take profits on any selloff into mid-January. 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
No recommendations this week.
Option Comments
Some of our option recommendations are doing very well and we will look to take profits on some of our positions very soon.
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.
Model Portfolio Comments/Changes
Our stocks are doing well and should improve benefitting from both the Santa Claus rally and January Effects.
Technical Information
We had a short term cycle in early December (plus or minus a few days) and it is now clear that the market made a low on November 27 (with intraday lows at DOW: 10,231, S&P 500: 1083 and QQQQ: 42.90) when the highs made on December 4 (with intraday highs at DOW: 10,517, S&P 500: 1119 and QQQQ: 44.73) were broken on December 24 with intraday highs at DOW: 10,522, S&P 500: 1127 and QQQQ: 45.98. The next cycle is due now in late December/early January and it is expected to be a high. A big move in the direction of the breakout (up) is a definite possibility. This week is the end of the month, quarter and year so there will be portfolio window dressing and tax loss selling. There should be a bullish bias to the week unless there is a lot of profit taking by those institutions not wanting to wait until January 4 (to beat the rush). Call option buying last week picked up sharply with put/call option ratios on two days at the third lowest level in two years (showing much too much bullishness, which is bearish). The other two cases were at intermediate tops. Some other sentiment indicators are also at levels seen at tops. Our next short term cycle is in mid-January which we expect to be a low. 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 or when many decide to take profits, 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 1150-1180 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 47-48 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 10,800-11,000.
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 was a low on November 27. After this cycle there is a cycle due now in late December/early January which now appears it will be a high. Seasonal factors favor it being a high. The next cycle after that one is a short term cycle in mid-January which will very likely be a low. The next intermediate cycle is in early March (which could be the end of this cyclical bull market).
Hypothetical Trading Results showed no change last week of as the net profit for the year less commissions on closed out trades remains around $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