Issue 295
Posted: March 1st, 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
March 1, 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
CSKI- China Sky One Medical- 15.53- a Chinese manufacturer of plant and herb based pharmaceutical and medical products. CSKI has dropped from 24 to good support in the 14-16 area. Has been under attack by the shorts so is volatile (the shorts have distorted and misrepresented recent events). Is only selling at around 6x earnings and is growing rapidly so has nice upside potential. Has no debt. Place a stop at 12.Shares are very thin; so beware, it is very volatile.
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 dollar strength or weakness was caused mostly by the Greek financial crisis. At times when aid for Greece seemed imminent the dollar fell which helped buoy equities last week. The uncertainty prevailed and twice, upon greenback strength, there were huge downside moves followed by rebounds on dollar weakness. Finally, at the weeks’ end, the markets ended just a little lower.
However, out of the ten Dow Industrial Groups, only 2 were higher. Financials were the leader up a not too shabby 1.16%. Consumer Services was the next best group gaining 0.66%. All the other groups were lower. Oil and Gas, which gained 3.41% last week was worst falling 2.30%. Utilities, beleaguered by inclement weather fall 1.74%. Basic Materials lost 1.56%. The other five groups all lost less than 1.00%.
There is much chatter concerning Greece, one of if not the oldest democracy, and what will be done to alleviate the looming crisis. Citizens accustomed to be provided for by the state are looking to strike next week if sanctions are imposed.
Pessimism pervades discussions of Europe today. Optimists are not to be found. Many warn that the entire economic and monetary union project is likely to falter over the large deficit and debt burden of the Mediterranean members…it all depends on whether Germany steps up to the plate or whether the EU has the political will to impose the bitter medicine necessary to avoid the looming banking crisis. There is no good choice to be made and that is why it is a tragedy. Germany has its own problems with a GDP only ( 0.5% )a tad above flat economic growth.
The news helped bolster U.S. treasuries which had strong auctions throughout the week. The 2 and 5 year auctions Tuesday and Wednesday were very strong, which also bolstered the dollar, followed by the 7-yr Note sale Thursday which was more mediocre.
Monday, Congress will be asked to extend the jobless benefits again which had been extended last Fall. 61,000 Michigan workers will lose their benefits this week if there is a delay. Some of the Republican Senators led by Jim Bunning ( R Ky ) want the $ 10 billion cost to be offset by budget reductions.
Economic Data
February Consumer Confidence last Tuesday was the catalyst for a huge decline coming in at just 46 with consensus at 55. Consumers registered negative feelings for both the near and long term. The Present Situation Index declined from 25.2 to 19.4, while the Expectations Index dropped from 77.3 to 63.8.
Then later in the week, GDP came in better at 5.9% vs a 5.7% consensus, with the Implicit Price Deflator declining 0 0.4% down from the prior estimate of 0.6% which was also the consensus.
January Existing Home Sales at 5.05 mln vs 5.50 mln consensus was a terrible disappointment showing the Housing Mkt is getting no better. Additionally, Unemployment Claims were much higher at 496,000 up from 474,000 disappointing as the consensus called for a decline to 460,000. Continuing Claims only rose by 6,000 as workers are running out of emergency benefits.
Job creation is terrible and might retard economic progress.
THIS WEEKS ECONOMIC NUMBERS and Media DATA
INDEX OPTION RECOMMENDATIONS
Last week we recommended buying the DOW (DIA) March 106 Put at the open last Monday. We bought the option at 2.76 and are holding this position with a small profit. Place a stop at 10,440. Take half profits at 10,200.
For investors it has continually been recommended that some puts are held to protect one’s portfolio (portfolio insurance) against sharp market sell-offs. 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
GG- Goldcorp- 37.78- has rallied from support at 33 to resistance at 38-39. Should now pull back. Buy the GG March 39 Put- 2.10- for a move back to 36 and then lower. Place a stop loss on the option when the stock closes over 40. Take half profits when the stock is at 36.
FXI- Chinese Stock ETF- 39.59- an ETF representing the top 25 Chinese stocks. Appears to have formed an inverted bottom formation and looks ready to break out to the upside. Buy the FXI April 38 Call- 2.70- for a move back to 42 and then higher. Place a stop loss on the option when the ETF closes below 37. Take half profits when the ETF is at 42.
Option Comments
Profits were taken on half the DOW March 31 put option position and on half the CHBT March 15 call option when the stocks reached their initial targets.
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 we should see selling pressure in the market last week because the previous week was an up option expiration. That is exactly what happened. The rally from the February 5 low (the market was very oversold and there was extreme pessimism at that low) was on light volume which made it suspect and it appeared to have been more likely just a short cover/oversold rally into option expiration on February 19. Our next cycle was in mid-February and it looks like the high came in on Friday February 19. The cycles 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 short term advance/decline oscillator is currently slightly overbought, but put option buying picked up sharply last week with the CBOE put/call ratio over 1.00 three days in a row which shows extreme pessimism. This week is the first week of the month when pension and 401k money comes into the market so a multiday rally is possible before the expected selloff into the March low. Initial support is at the February 25 intraday lows at DOW: 10,186, S&P 500: 1086 and QQQQ: 43.83. Breaking these lows would indicate that the selloff into the cycle low was in progress. 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: 45.05. A close above these levels would indicate a larger rally was in progress and might indicate that the early March low is in. 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 1086: 1044 Resistance S&P 500: 1113
DOW 10,186: Resistance DOW 10,438
QQQQ 43.83;42.12 Resistance 4405, then 44.89
CYCLES
There was a short term cycle 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 was 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 was a high that came in on February 19. The next intermediate cycle is in early March (plus or minus a week) 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 gain last week as tabulation of the half profits for the Dow 31 Put and CHBT Call amount to $ 1875.00. Previous closed out trades before commissions plus the profit last week on closed out trades advanced to $ 11,315.00
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