Issue 289
Posted: January 18th, 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 18, 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
IDCC- InterDigital Inc- 25.72 – designs and develops digital wireless technologies that it licenses to semiconductor companies and producers of wireless equipment. Is selling at less than 10 times estimated earnings for 2010. Is growing at 10-20% a year. Buy at any price below 25. Once it trades at 25 or less we will use 25 for our portfolio calculations. Place a stop at 22 once purchased.
Market Laboratory – Weekly Changes
( Prices taken from Barrons )
Model STOCK PORTFOLIO
- Each stock is allocated a $ 5,000 share of the portfolio unless otherwise indicated. We recommend a double position in ENZ and MTBR.
Note: Previous closed out positions can be found in the April 20, 2009 letter.
Model Portfolio Comments/Changes:
Last week’s CYD recommendation pulled back to the 18 buy price last week Wednesday so was purchased and added to our portfolio.
FUNDAMENTAL NEWS
The market finally had an overdue down day following a string of seven successive up days to launch the new- year. That was last Tuesday. Then, last Thursday the Dow and SP 500 made new highs, while the Russell and Transportation Indexes had done that earlier in the week.
Alcoa began the earnings season ( 0.01 vs 0.06 ) disappointing the street. Then, JP Morgan reported disappointing top line results ( $ 25.2 billion vs $ 26.8 billion expected by most ). Intel reporting Thursday night had great earnings ( $ 0.40/sh vs $ 0.30/sh ) and the market had made new highs just before and after the report, but could not hold. Large cap stocks dominating the indexes leant some support to an overall overbought market looking for an overdue reaction.
Telecomm was the worst of the ten Dow Industrial groups falling 4.07% Basic Materials was not much better posting losses of 3.32%; Oil and Gas fell 1.72% and Financials were down 1.17%. Consumer Services fell 0.79%. Technology appeared worse than its 0.77% demise and Industrials were off 0.74%. That was the extent of the losses as Health Care was the best group gaining 1.37% followed by Utilities which gained 0.67%. Consumer Goods rose 0.61%.
Economic Data
The economic reports were disappointing suggesting that the recovery is slow to begin. Retail Sales for December were surprisingly weak at – 0.3% when compared to a +0.5% consensus and +1.8% last month. Retail Sales Ex-Auto were no better at -0.2% with +0.3% expected and + 1.9% in November. It was the first report over the past three months that consumers had not increased their monthly spending. Retail Sales could remain depressed given the disappointing employment and housing trends.
Business Inventories grew 0.4% in November following a similar increase in October. Business inventories include wholesale, manufacturing and retail, all of which are a component of GDP. December Capacity Utilization rose to 72% mostly due to colder weather as utility production jumped 5.9% after falling 2.4% in November. Manufacturing actually declined 0.1% in December after increasing 0.9% in November.
The latest Consumer Price Index Report showed little signs of inflation rising 0.1% in December after increasing 0.4% in November.
THIS WEEKS ECONOMIC NUMBERS and Media DATA
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 hit our target level at DOW 10,650 where profits were taken as per last week’s instructions. We expect a pullback this week and possibly longer so we will try the put side. Buy the DOW February 108 Put (DIAND).
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-late January. For those who have no put options to protect your portfolio we recommended the following options, especially on any rally: the DOW February 105 puts (diana) or the February 107 puts (dianc) and the QQQQ February 46 puts (qqqnt) or February 48 puts (qqqnv).
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.
All options count for a $2500 position each for model portfolio calculations. 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 if the option opens higher or lower (by a reasonable amount) than the Friday closing price. The options will be followed until closed out.
Stock Option Recommendations
New Recommendations
XLF- Financial ETF- 14.94- goes up when financial stocks (mainly banks) go up and vice versa. Appears to have made a small top formation and should pullback to 14. Buy the February 16 Put- XJZNP- 1.18- for a move back to 14 and then lower. Place a stop loss on the option when the ETF closes above 16. Take half profits when the ETF is at 14.
SLV- Silver Bullion ETF- 18.05- goes up when silver go up and vice versa. Appears to have made a lower high and a small top formation and should pullback to the 16-17 area. Buy the February 20 Put- SLVNT- 2.05- for a move back to 17 and then lower. Place a stop loss on the option when the ETF closes above 19. Take half profits when the ETF is at 17.
AMZN- Amazon.com- 127.14- has formed a two month top formation. A close below 125 gives a minimum target of 110 so puts are an interesting play. Buy the February 130 Put- QZNNY- 8.95- for a move back to 110 and then lower. Place a stop loss on the option when the stock closes above 135. Take half profits when the stock is at 117.
Option Comments
Nine of our option positions (full or half positions) expired on Friday and we used closing prices on Friday for portfolio calculations. The results were mixed. Some of our put options were very profitable and some of our call options ended up with smaller profits or small losses as a result of the selloff on Friday.
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 November 23, October 23, August 24, July 20, newsletters.
Technical Information
We have a cycle due now in late December/early January (plus or minus a week) and it has been expected to be a high which appears to have come in last week Thursday January 14 at DOW: 10,724, S&P 500: 1151 and QQQQ: 46.64 (January 11). We expected a bullish bias to last week since it was option expiration week which usually has a bullish bias since the shorts and option writers often get squeezed. That is exactly what happened for the first four days last week. Upside momentum (upside volume and the advance/decline ratio) has been 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 again 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 and it appeared to have started on Friday. Even on Friday (100 point DOW drop) there were more call options than put options. Our next short term cycle is in mid-January (plus or minus a few days) which we expect to be a low. The week after an up expiration week is usually down which would coincide with our cycle. There is another short term cycle in mid-February and that could end up being the low, after an intervening rally, for the pullback. Initial support is at the January 12 lows at DOW: 10,560, S&P 500: 1131 and QQQQ: 45.53. A close below those levels could indicate a pullback had started. The December 31 lows at DOW: 10,423, S&P 500: 1114 and QQQQ: 45.53 (January 12) are the key support for the intermediate bullish case. Closes below those levels would indicate that a larger pullback was in progress. 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. 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 1131; then 1114: Resistance S&P 500 1150 to 1175
DOW 10,560; then 10,423 Resistance DOW 10,800
QQQQ 45.53; 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 (plus or minus a week) which has been expected be a high and it looks like it came in on January 14. 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. Then there is another short term cycle in mid-February which could end up being the low of the pullback, after an intervening rally. The next intermediate cycle is in March/April (which could be the end of this cyclical bull market).
Hypothetical Trading Results showed a LOSS last week of $ 345.00 as the net profit for the past year less commissions on closed out trades decreased to $ 4,814.00
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