Issue 292
Posted: February 8th, 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
February 8, 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
No new recommendations this week. We are waiting for lower levels.
Model Portfolio Comments/Changes
We were stopped out of our HITK position. The stock is very thin so very volatile. We believe the stock is very cheap and will look to re-enter our position.
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.
FUNDAMENTAL NEWS
February began with a huge sell-off mitigated somewhat by short-covering and a relief rally late Friday led by the tech sector which reduced losses.
The trade was influenced largely by the dollar, which gained on the back of European Nations plagued by debt problems. Greece, Ireland, Spain and Portugal were all noticed for their budget deficits and seemingly inability to fund their problems.
Basic Materials, the worst acting Dow industrial group two weeks ago, was the best last week. Up +0. 97%, followed by Technology, which was up 0.92%. The remaining groups were all lower: Utilities were the worst down 2.04%; Financials fell 1.78% and Health Care 1.64%; Consumer Services was off 1.04% and Telecomm 0.92%. The Industrials Group was minus 0.90% and Oil and Gas – 0.62%. Consumer Goods fell 0.33%.
Economic Data
Initial Unemployment Claims for the week ended Jan 30th were disappointing as claims got worse again rising to 480,000. It wasn’t the 8,000 jobs lost so much as a lingering disappointment that the Employment situation is not improving.
Then, Friday, no-one understood the adjusted report which showed an less applicants for jobs, removing job seekers off the base employment list and thus lowering unemployment to 9.7%. Another 20,000 jobs were lost in January as the consensus had called for a gain of 15,000 jobs. Since the recession began 8,400,000 jobs have been lost.
THIS WEEKS ECONOMIC NUMBERS and Media DATA
INDEX OPTION RECOMMENDATIONS
We wanted to buy puts on the expected rally last week to play the selloff but the DOW did not get as high as expected. We now recommend buying the DOW March 105 Put (DIAOA) when the DOW rallies back to 10,250.
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 early- mid February. For those who have no put options to protect your portfolio we recommended the following options, especially on any rally: the DOW April 103 puts (diapy) or the April 101 puts (diapw) and the QQQQ April 44 puts (qqqpr).
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
We will try two call option plays to play an expected snapback rally. We will buy puts once we have had that rally.
HITK- Hi-Tech Pharmacal- 20.35- dropped from 30 to support at 20 in a month and should now have a good bounce. Buy the March 20 Call- DBQCD- 2.15- for a move back to 23 and then higher. Place a stop loss on the option when the stock closes below 18. Take half profits when the stock is at 23.
DUG- Inverse Oil & Gas ETF- 13.86- goes up when oil & gas stocks go down and vice versa. Has formed a large inverted head and shoulder base formation and looks ready to break out above the neckline at 14 (it traded above 14 on Friday but failed to close above 14). Buy the March 14 Call- DZGCN- 1.10- for a move back to 16 and then possibly higher. Place a stop loss on the option when the ETF closes below 12.50. Take half profits when the ETF is at 15.50.
Option Comments
Half profits were taken on our QZNNY put option and our SKWBQ and SQRCI call options when the three stocks hit their initial targets. We were stopped out of our DBQCE call option position. Take the remaining nice half profits on our SLVNT and QZNNY put positions Monday morning.
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 in late December/early January (plus or minus a week) and it had been expected to be a high which came in on January 14/19 with intraday highs at DOW: 10,730, S&P 500: 1151 and QQQQ: 46.64. Our next short term cycle was mid-late January which we expected to be a low, which came in Friday January 29. We expected a rally early last week since it was the beginning of the month which usually has a bullish bias because 401k and pension money comes into the market. Also, the short-term advance/decline oscillator was very oversold and put option buying had picked up sharply the previous week (the CBOE put/call ratio was over 1.0 twice) and the total put/call ratio also got over 1.0 once. The rally last week Monday and Tuesday was thus exactly as expected. It relieved part of the oversold condition and call option buying picked up. There is another short term cycle now in early-mid February and we believe it will end up being the low for the pullback. It is possible that the intraday lows on Friday February 5 (at DOW: 9,835, S&P 500: 1044 and QQQQ: 42.12) are the low of this cycle. The short-term advance/decline oscillator is again very oversold and put option buying picked up very sharply the last two days of last week with the CBOE and total put/call ratios over 1.0 on both those days. All three indices also had key reversals up (making lower lows but closing up on the day) on Friday. A multiple day rally to work off the oversold condition and the extreme pessimism is now likely and will probably be followed by a test of the February 5 lows in mid February. However, it must be kept in mind that some of the biggest declines in the past have come when the market was oversold so additional selling is always possible but a rally now is more likely. The next support below the February 5 lows is at the November 2 intraday lows at DOW: 9,679, S&P 500: 1029 and QQQQ: 40.64. Initial resistance is at DOW: 10,315, S&P 500: 1104 and QQQQ: 43.97. 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 (possibly May) based on cycles.
The support and resistance levels to watch now are: S&P 500: support is at 1044, then 1020-1029 and then 992 while resistance is at 1104, then 1150-1180 for the QQQQ: support is at 42.12, then 40.64- 40.72 and then 39.02 while there is resistance at 43.97, then 44.89, then 46.64, and then 47-48 and for the DOW: support is at 9,835, then 9,679 and then 9,430 while there is resistance at 10,315, then 10,730 and then 10,800-11,000.
Support Levels: S&P 500 1044: Resistance S&P 500 1104
DOW 9,835; 9679 Resistance DOW 10,315
QQQQ 42.12;40.72 Resistance 43.97, then 44.89
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 came in on January 14 and then was tested exactly on January 19. The next cycle after that one was a short term cycle in mid-late January (plus or minus a few days) which was expected to be a low. This low came in on Friday January 29. Then there is another short term cycle in early-mid February which we believe will end up being the low of the pullback. It is possible that the intraday lows made on February 5 are the cycle lows or lower lows will be made mid-February after a rally lasting several days. The next intermediate to longer term cycle is in March/April which we expect to be a high (which could be the end of this cyclical bull market).
Hypothetical Trading Results showed a loss last week of $ 321.00 as the net profit for the past year less commissions on closed out trades decreased to $ 9,076.00
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