Issue 290
Posted: January 25th, 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 25, 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
STEC- STEC Inc- 15.08– designs and manufactures solid-state drives that provide data storage solutions. Is selling at less than 10 times estimated earnings for 2010. Is growing rapidly. Is very volatile so is an ideal trading stock. Should have a good bounce on any market snap back rally. Take half profits at 18. Place a stop at 12.
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 IDCC recommendation has pulled back but not to our 25 buy price yet but it is very close. For now we will keep our buy price at 25.
FUNDAMENTAL NEWS
The market finally collapsed which almost everyone had been predicting and wrong for the past six months. All Dow Industry groups were lower.
Financials got pounded as Prez Obama announced a plan ( lacking in detail ) to stop banks from investing, trading directly in equities, a sort of return to the Glass Steagle type atmosphere.
Earnings results were excellent. Out of about 61 companies reporting 48 posted positive results. However, the good earnings, widely expected could not stop the significant declines even in the positive reporting stocks. The Dow ten Industrial Groups had their worst showing of the year.
Financial institutions were mixed in their reporting: Goldman, American Express, Capital One Wells Fargo, US Bancorp all beat; while Morgan Stanley, Bank of America both missed and Citigroup was right in line with expectations.
Among the non financial companies, IBM posted very nice results but got pounded after making new highs in the after-market and quickly reversed from above $ 136 a share to below $ 130, a huge reversal. GE, McDonalds and Google all posted better-than-expected results, but virtually collapsed.
Basic materials was the worst industry group off 3.66% followed by Oil and gas down 2.80%; Financials fell 2.29%, Industrials 2.28%; Technology fell 2.16%; Consumer Goods 2.03% and Utilities 1.85%. Telecommunications was off 0.61% and Consumer Services -0.48% with Health care off the least down 0.45%.
Economic Data
Some of the economic reports were poor especially Housing Starts at 557K against a consensus of 572K and Philadelphia Fed at just 15.2 when 18 was expected and Initial Unemployment Claims which were abysmal at 482K when 440K was expected.
Leading Economic Indicators was excellent but had only a little momentary positive effect, which was up over 1%, the best showing since September. The coincident Indicator rose 0.1% in December, while the Lagging Index was down again 0.2% and the ratio of coincident to lagging has improved for the eleventh consecutive month. In addition, Building permits showed an improvement at 653K well above consensus of 580K.
The markets do what they want to do and then we try to find out why. The numbers were not that bad, but the markets were overdue for a sell-off.
THIS WEEKS ECONOMIC NUMBERS and Media DATA
INDEX OPTION RECOMMENDATIONS
We bought the DOW February 108 Put (DIAND) last Tuesday at the open at 3.10 as per last week’s recommendation. We have a very nice profit and will take this at the open on Monday. We recommend buying the DOW February 105 Put (DIANA) when the DOW rallies back to 10,400.
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 (or have taken) profits on any selloff into mid-late January or mid-February. 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
CSR- China Security- 7.73- after rallying to 9 has now pulled back to good support at around 7.50. Should have a snapback rally. Buy the March 7 ½ Call- CSRCU- 0.80- for a move back to 8.50 and then higher. Place a stop loss on the option when the stock closes below 7. Take half profits when the stock is at 8.50.
HITK- Hi-Tech Pharmacal- 23.36- has dropped from 30 to 23 in two weeks so is oversold and should have a good bounce. Buy the March 25 Call- DBQCE- 1.85- for a move back to 26 and then possibly higher. Place a stop loss on the option when the stock closes below 21. Take half profits when the stock is at 26. This stock is very volatile.
Option Comments
SLV reached its initial target so we took half profits on our SLVNT put option for a nice profit. The TBTBV call option was stopped out (bonds went up when the stocks started tumbling, but we are making a nice profit on our DOW put, which we will take Monday morning). Some of our other puts are doing very well. Besides taking profits on our DIAND put option, also take full profits on our ACINX put option at the open on Monday.
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 had a cycle due now in late December/early January (plus or minus a week) and it has been expected to be a high which appeared to have come in on January 14 with intraday highs at DOW: 10,724, S&P 500: 1151 and QQQQ: 46.64 (January 11). These levels were tested on January 19 with the DOW making a very slightly higher intraday high at 10,730 while the S&P 500 and QQQQ got up exactly to the January 11/14 highs at 1151 and 46.64, respectively. We have been pointing out that upside momentum (upside volume and the advance/decline ratio) had been lagging prices badly, which showed that the advance was tiring and that option put/call ratios had dropped to very low levels (multi-year lows) showing much too much optimism (which is bearish). Some other sentiment indicators were also at levels seen at tops. The conditions were thus ripe for a pullback and it started with a vengeance this past week. Our next short term cycle is in mid-January (plus or minus a few days) which we expect to be a low. The low could have come in this past Friday January 22 or will come in early this week. The short-term advance/decline oscillator is very oversold and put option buying picked up sharply this past Friday (the CBOE put/call ratio was over 1.0). There is another short term cycle in early-mid February and that could end up being the low, after an intervening rally, for the pullback. Initial support at the January 12 lows at DOW: 10,560, S&P 500: 1131 and QQQQ: 45.53 were broken on Thursday January 21, confirming that a pullback had started. The December 31 lows at DOW: 10,423, S&P 500: 1114 and QQQQ: 45.53 (January 12) were also broken. The November 27 lows at DOW: 10,231, S&P 500; 1083 and QQQQ: 42.90 are key levels since the indices found support there several times in November-December. The DOW broke its November 27 low this past Friday when it got down to 10,158. The S&P 500 and QQQQ held above their November lows setting up a potentially bullish divergence, which could lead to a rally. There could be another sharp selloff if all three indices close below the November 27 lows. The next support is at the November 2 intraday lows at DOW: 9,679, S&P 500: 1029 and QQQQ: 40.64. It looks like fund managers who have done well this past year have decided to take profits by selling some of their stocks. How much more they decide to sell could determine how deep any additional correction is. 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 1083-94; then 1029: Resistance S&P 500 1150 to 1175
DOW 10,100 Resistance DOW 10,730
QQQQ 43.73; then 42.90 Resistance 46.64
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 was a cycle due 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 and then was tested exactly on January 19. The next cycle after that one is a short term cycle in mid-January (plus or minus a few days) which will be a low. This low could have come in this past Friday January 22 or will come in early this week. Then there is another short term cycle in early-mid February which could end up being the low of the pullback, after an intervening rally. The next intermediate to longer term cycle is in March/April (which could be the end of this cyclical bull market).
Hypothetical Trading Results showed a GAIN last week of $ 692.00.00 as the net profit for the past year less commissions on closed out trades increased to $ 5,506.00
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