Issue 288
Posted: January 11th, 2010 | 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
January 11, 2010; 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 on Options Trading may be
more timely to Take your Profits/Losses
New Stock Recommendations
CYD- China Yuchai Int- 18.70- a Singapore based manufacturer of diesel engines for vehicles in China. Is selling at less than 10 times earnings. Broke out above resistance at 17 last week. Buy at any price below 18. Once it trades at 18 or less we will use 18 for our portfolio calculations. Place a stop at 15 once purchased.
Market Laboratory – Weekly Changes
( Prices taken from Barrons )
Model STOCK PORTFOLIO
- Each stock is allocated a 5% share of the portfolio $ 2,500.00 (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:
Our LINC, CSR, LEI and ENSG recommendations all reached the initial price levels so half profits were taken. Hold the remaining half’s since these stocks are still very cheap and should go higher.
FUNDAMENTAL NEWS
The new -year started out strong confirming the Santa Claus rally which forebodes a good year ahead. Many major indexes including Nasdaq, the S&P 500, Dow and Transportation indicies all reached new 52-week highs. School is still out for January. However, the past 13 years that had a post Christmas high were followed by nine positive Januarys and the average return for those years was 19.4%. Many portfolios, pension funds and IRA’s got well by those who didn’t listen to most of the doom and gloom experts and just held on to widely held well-known companies. The rally was broad with many of the old-guard prominent stocks outperforming the the S&P 500. Ford ( F: $ 11.69 ) was just a buck November 2008. Take Dow Chemical ( DOW: $ 31.15 ) just $ 6.16 March 2009. Ashland Oil ( $ 40.62 ) rallied from just above $ 5 to above $40 over the last nine months. AK Steel ( AKS: 25.77 ) moved from just 5 bucks while big steel more than tripled.
Commodities were very strong late in the week. Crude Oil opened lower following the disappointing employment report, but soon reversed taking with it the entire complex. Our recommended Lucas Energy ( LEI: $ 0.78 ) continued northward having made a 31 cent gain 66% in only three weeks. Payrolls lost 85,000 jobs while expectations were for an unchanged reading. The disappointment was quickly overcome as cash from the sidelines unloaded some more conservative treasuries to buy the riskier equities.
Basic Materials led all ten industrial groups last week with a sizable 7.33% gain followed closely by Oil and Gas + 5.46% and Financials up 4.63%. Industrials rose 4.51%. Health Care gained a smaller 2.05%; Consumer Goods were up 1.61% and Consumer Services 1.45% while technology gained just 1.22%. Utilities were the worst performer losing 0.61%.
THIS WEEKS ECONOMIC NUMBERS and Media DATA
Looking ahead to this week the Employment Report Friday and the Payroll Number looms large.
INDEX OPTION RECOMMENDATIONS
We bought the DOW January 103 Call (DIAAY) several weeks ago at 3.40 to play the expected rally into late December/early January. The DOW did not quite make it to our initial level at DOW 10,650 where we would have taken profits. We will hold on to this position until expiration or until 10,650 is reached, even though we are expecting a pullback into mid-January. We will however raise our stop to DOW 10,500. When DOW 10,230 is reached buy the DOW February 103 Put (DIANY).
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
SRS- Inverse Real Estate ETF- 7.48- goes up when real estate stocks go down and vice versa. Appears to have made a base formation and should rally to 8.50-9. Buy the February 7 Call- SKWBG- 0.82- for a move back to 8.50 and then higher. Place a stop loss on the option when the ETF closes below 7. Take half profits when the ETF is at 8.50.
ACI- Arch Coal- 26.82- has rallied from 20 to 27 in a month so is overbought and should now pullback. Buy the February 28 Put- ACINX- 2.35- for a move back to 24 and then lower. Place a stop loss on the option when the stock closes above 29. Take half profits when the stock is at 24.
Option Comments
We took the remaining half profits on our CQWAH and CSRAA call options at the open last Monday for some very nice profits. We were stopped out of our new NZANC put position for a small loss. We were unlucky when the stock was recommended last Monday by a brokerage firm. Nine of our option positions (full or half positions) 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.
Technical Information
We have a cycle due now in late December/early January and it is expected to be a high which we thought last week that it could have come in on December 29 with intraday highs at DOW: 10,580, S&P 500: 1131 and QQQQ: 46.30 but higher highs were made last week Friday at DOW: 10,619, S&P 500: 1145 and QQQQ: 46.55. We expected a bullish bias to last week since it was the first week of the month when 401k and pension money comes into the market. That is exactly what happened. It is possible that the cycle high came in on Friday or will come in early this week. This week is option expiration week and it usually has a bullish bias since the shorts and option writers often get squeezed. The market might thus hold up this week before a pullback. Upside momentum(upside volume and the advance/decline ratio) is lagging prices badly, which shows that the advance is tiring. Several weeks ago the put/call option ratios on two days that week were at the third lowest level in two years (showing much too much bullishness, which is bearish). The other two cases were at intermediate tops. Last week there was also a lot more call option buying than put options and the put/call ratio was again at very low levels (the 10-day CBOE put/call average is at the lowest level in several years). Some other sentiment indicators are also at levels seen at tops. For example, the number of bearish news letter writers is at a 22 year low, showing that there is much too much complacency (which is bearish). The conditions are thus ripe for a pullback. Our next short term cycle is in mid-January (plus or minus a few days) which we expect to be a low. The December 31 lows at DOW: 10,423, S&P 500: 1114 and QQQQ: 45.75 now become key support for the intermediate bullish case. Closes below those levels would indicate that the pullback had started. Support below the December 31 lows is at the November 27 lows at DOW: 10,231, S&P 500; 1083 and QQQQ: 42.90 and then at the November 2 intraday lows at DOW: 9,679, S&P 500: 1029 and QQQQ: 40.64. A close below the November 27 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, commodities and bonds. Fund managers who have done well this past year might decide to take profits by selling stocks or buying puts (if they decide not to sell some of their holdings). That could lead to a sharp correction. 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 another big selloff this 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.
Support Levels: S&P 500 1114; then 1083-94: Resistance S&P 500 1150 to 1175
DOW 10,423; then 10,250 Resistance DOW 10,800
QQQQ 45.75; then 42.90 Resistance 47.00-48.00
CYCLES
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 will be a high that could have come in on January 8 or will come in early this week. The next cycle after that one is a short term cycle in mid-January (plus or minus a few days) which will very likely be a low. The next intermediate cycle is in March/April (which could be the end of this cyclical bull market).
Hypothetical Trading Results showed a gain last week of $ 1757.00 as the net profit for the past year less commissions on closed out trades increased to $5,107.00
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 2,700,000 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