Issue 293
Posted: February 14th, 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 15, 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
FUNDAMENTAL NEWS
Following three decisive down weeks of destruction, totaling 895 Dow and 106 S&P 500 points, a modest retracement occurred last week making an attempt to penetrate the January lows. The Dow made back 264 points or 27% of the loss while the S&P 500 regained 106 points or 9.2%.
Basic Materials led all ten Dow Industrial Groups rallying 3.21%; followed by Consumer Goods up 2% and Technology plus 1.87%; Oil and Gas rose 1.70% reversing a poor performance last week. Then with smaller gains Consumer Services gained 1.61% followed by Industrials up 1.38% and then Health Care up 0.42% and Telecommunications + 0.14%. The remaining two groups were lower; Financials fell 0.05% and Utilities, beleaguered by weather were worst shedding 0.59%. The Russell 2000 outperformed all indexes gaining 2.99%.
The dollar continued to be the main source of influence as the potential aid package for Greece helped prop up the markets and depress the greenback. The Euro seems tentative, looking distressed from reports from Germany, that Europe’s leader had a meager 4th Qtr GDP growth of just 0.1%. This could keep a floor under the dollar and a lid on equities if Europe continues to have bad news on the economic front. Also underpinning the greenback was Federal Reserve Chairman Bernanke’s testimony for unwinding the emergency lending programs that infused liquidity into the banking system to prevent a further recession if not a depression. He suggested the likelihood of an increased discount rate “ before long.”
Markets are closed around the world on Monday as in addition to our President’s Day, the Lunar New Year festivities begin in Asia and China, Taiwan and Korea. Carnival will be celebrated in Latin America. Dozens of markets will be closed Monday and many all week long. Trading from overseas should be subdued. However, much action should be forthcoming from here as a multitude of Earnings Reports are to be forthcoming including: Abercrombie, Analog Devices, Apache, Barrick Gold, Dell, First Solar, Hewlett Packard, Intuit, Kraft, Las Vegas Sands, Merck and WalMart and will probably dominate the news.
Market Laboratory – Weekly Changes
( Prices taken from Barrons )
New Stock Recommendations
No new recommendations this week. We are waiting for lower levels.
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:
Some of our portfolio stocks (such as ENSG, IDCC and EBIX) did very well last week.
Economic Data
Initial Unemployment Claims for the week ended Feb 5th were better as claims fell to 440,000 compared to a consensus of 465,000. Treasure auctions were weak on Wednesday and Thursday and yields popped. Bid-to-Cover ratios and number of indirect bidders was poor.
The economic calendar will pick up next Wednesday and Thursday ( see chart below ) and will influence markets balance of the week.
THIS WEEKS ECONOMIC NUMBERS and Media DATA
INDEX OPTION RECOMMENDATIONS
Last week we recommended buying the DOW March 105 Put (DIAOA) when the DOW rallied back to 10,250. We will keep this trade for this week. If filled place a stop at DOW 10,350.
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 early January 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.
OPTION SYMBOLS HAVE CHANGED. WE WILL NOW USE THE NEW TERMINOLOGY (stock symbol with expiration month and strike price)
Stock Option Recommendations
New Recommendations
CHBT- China-Biotics- 14.83- broke up out of a small base formation on good earnings last week. Buy the CHBT March 15 Call- 1.00- for a move back to 16-17 and then higher. Place a stop loss on the option when the stock closes below 13. Take half profits when the stock is at 16.50.
SCO- Double Short Crude Oil ETF- 15.42- goes up when oil goes down and vice versa. Has formed a large base formation and looks ready to break out above the neckline at 16.50. Buy the SCO March 14 Call- 1.90- for a move back to 17.50 and then possibly higher. Place a stop loss on the option when the ETF closes below 14. Take half profits when the ETF is at 17.50.
Option Comments
We took the remaining nice half profits on our SLVNT and QZNNY put positions last 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.
- Option Symbols have changed. We will now use a new terminology. ( stock symbol with expiration month and strike price )
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 late-January which we expected to be a low, which came in Friday January 29. There is another short term cycle now in early-mid February and a low could have come in on February 5 (at DOW: 9,835, S&P 500: 1044 and QQQQ: 42.12). It now looks like the late-January/early-February cycles combined to form a low on February 5. The short-term advance/decline oscillator was very oversold and put option buying had picked up very sharply at that low. Hence, as we wrote last week, we expected a multiple day rally to work off the oversold condition and the extreme pessimism. The rally came exactly as expected and the oversold condition has now been worked off (the short term oscillator is now neutral), but not all of the extreme pessimism. What will happen now is the question. A test of the February 5 lows is still possible going into in our mid-February cycle, however, this week is option expiration week which usually has a bullish bias (because the shorts and option writers are often squeezed). It is thus difficult to predict this week’s action. During this past week there still was a lot of put option buying with the CBOE and total put/call ratios between 0.85 and 1.0 on all five days, which shows there was more pessimism than optimism (ratios over 1.0 show extreme pessimism). The cycle after the mid-February cycle is an intermediate cycle in early-March (plus or minus a week) and then a longer term cycle in April-May. If the mid-February cycle ends up being a high then the early March cycle will be expected to be a low and vice versa. 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. A close above these levels would indicate a larger rally was in progress. 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/were 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 longer term cycles.
Support Levels: S&P 500 1044: 1029 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 late January (plus or minus a few days) which was expected to be a low, which came in on Friday January 29. Then there is another short term cycle in early-mid February which we believe ended up being a low that came in at the intraday lows made on February 5. It now looks like the late-January/early-February cycles combined to form a low on February 5. The mid-February cycle could end up being either a low (a test of the February 5 low) or a high. The next intermediate cycle is in early March (which could be a low or a high depending on what the mid-February cycle ends up being) and the next longer term cycle comes in April-May which we expect to be a high (which could be the end of this cyclical bull market).
Hypothetical Trading Results showed a nic gain last week of $ 2467.00 as the net profit for the past year less commissions on closed out trades increased to $ 11,543.00
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