Issue 294
Posted: February 22nd, 2010 | Author: Michael King and Dr. Jan Vandersande
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 22, 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
HITK- Hi-Tech Pharmacal- 21.53- a generic drug manufacturer. We were stopped out of this one recently but it now forming a base in the area of good support. Is only selling at around 10x earnings and is growing rapidly so has nice upside potential. Place a stop at 18. Is very thin so is very volatile.
LEI- Lucas Energy*- $ 0.58 – a small independent oil producer. We recently took half profits at 0.75. We will now add a half position at the current level. Production is increasing nicely. Place a stop at 0.47.
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:
Some of our portfolio stocks are doing quite well.
FUNDAMENTAL NEWS
The Fed Chairman became true to his word as the discount rate was hiked by 25 basis points point to 0.75%. The FOMC minutes hinted in their release late Wednesday. Stocks plummeted immediately following the news release late Thursday following the close. However, if traders who were short in expectation, did not hedge with those few items that trade in the aftermarket; then, there were no profits to be had as equities quickly rallied for a fourth consecutive day as there was no stopping the bullish rampage. The Fed believes current economic conditions warrant low interest rates even though they increased their GDP expectations from 3.0% to 3.3%.
Basic Materials led all ten Dow Industrial Groups, all of which were much higher, rallying a hefty 5.02% following a not too shabby performance ( + 3.21% ) last week ,followed by Industrials, up 4.51% and Financials plus 4.01%; Utilities were next best up 3.67% with Consumer Services up 3.44%. Oil and Gas improved by 3.41% and Technology + 2.99%. Consumer Goods was up 2.91% and Health Care 2.11%. Finally, Telecommunications was up the least gaining 1.43% ending what was a tremendously positive week for the indexes.
The dollar continued to be a main source of influence as the potential aid package for Greece helped prop up the markets and depress the greenback. However, earnings were a healthy influence as Hewlett Packard, Merck, Deere, Kraft and Wal-Mart all beat estimates.
Economic Data
Initial Unemployment Claims for the week ended Feb 13th were weak as claims rose to 473,000 compared to a consensus of 438,000. Continuing Claims were no better holding at 4.536 mln. The consensus was 4.50 mln. The employment picture does not get better.
Housing Starts for January were much better at 591,000 units up 21% from year ago levels and above the 575,000 for December. Structures of 2 or more units rose 9.2%, while single family units were up just 1.5% to 484,000 units.
The January CPI ( +0.2% vs +0.3% consensus ) was much better than expected, which countered the high levels reported in the PPI. The overall reading would have been lower if it weren’t for an increase in the energy index which jumped 2.8% on the back of a 4.4% rise in the gasoline index and a 6.1% increase in the fuel oil index.
The CORE CPI, which excludes food and energy, was lower at -0.1%, all of which should indicate the inability of businesses to pass along their higher wholesale costs. The decline would have been greater if not for a 0.7% increase in the Medical Care Index, which was the largest increase since January 2008.
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 and we were filled at 3.60. We placed a stop at DOW 10,350 and unfortunately got stopped out on Thursday for a small loss. It looks like we kept our stop too close.
We will try the put side again, since the market is overbought and the week after an up expiration week is usually down. Buy the DOW (DIA) March 106 Put at the open on Monday.
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 (DIA) April 103 put and the QQQQ April 44 put.
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
DOW- Dow Chemical- 29.23- has rallied from support at 26 to resistance at 29-30. Should now pull back. Buy the DOW March 31 Put- 2.10- for a move back to 28 and then lower. Place a stop loss on the option when the stock closes over 32. Take half profits when the stock is at 28.
SCO- Double Short Crude Oil ETF- 13.30- goes up when oil goes down and vice versa. We tried this one last week but got stopped out. Crude oil is very overbought so should pullback. Buy the SCO March 12 Call- 1.60- for a move back to 15 and then possibly higher. Place a stop loss on the option when the ETF closes below 12. Take half profits when the ETF is at 15.
Option Comments
The remaining half positions of the SKWBG and XJZNP options were closed out at expiration on Friday for profits. The DIA March 105 put option and the SCO March 14 call option were stopped out for small losses.
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 wrote in last week’s letter that last week was option expiration week which usually has a bullish bias (because the shorts and option writers are often squeezed) and that option numbers showed more pessimism than optimism (five days with ratios between 0.85 and 1.0). A rally was thus more likely than a continued selloff. 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, we expected a 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 actually overbought). The current rally has been on very light volume which makes it suspect and more likely just a short cover/oversold rally into option expiration. Our next cycle is now in mid-February and it looks like the high came in on Friday February 19 or will come in early this week. 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. We now expect the early March cycle to be a low. The week after an up option expiration week is usually down so this week should see selling pressure. Last week saw an increase in call option buying making the option numbers neutral. Good support is at the February 5 lows at DOW: 9,835, S&P 500: 1044 and QQQQ: 42.12. 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: 10,438, S&P 500: 1113 and QQQQ: 44.05. A close above these levels would indicate a larger rally was in progress. 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 April (possibly May) based on longer term cycles.
Support Levels: S&P 500 1044: 1029 Resistance S&P 500 1113
DOW 9,835; 9679 Resistance DOW 10,438
QQQQ 42.12;40.72 Resistance 4405, then 44.89
CYCLES
There was a short term 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 will be a high that came in on February 19 or will come in early this week. The next intermediate cycle is in early March which we expect to be a low 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 loss last week of $ 1595.00 as the net profit for the past year less commissions on closed out trades decreased to $ 9,440.00
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