Issue 296
Posted: March 8th, 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 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
Model Portfolio Comments/Changes:
Some of our portfolio stocks (such as CSR, LINC, CHBT, HITK, EBIX and LEI) did very well last week, featuring big moves in some of them. We will hold all portfolio stocks into our expected cycle top in April-May. If you have some nice profits in these stocks, money management is up to you; you can either take profits or raise your stops to protect profits.
FUNDAMENTAL NEWS
Markets all surged leaving many participants surprised. Markets do what they want and then we economists try to figure out why. The means of production are predominately extremely cheap and historians might wonder what has taken so long for experts to put them together. Even Money Supply has cooperated up 11.2% yoy. ( raw M1 not-adjusted) Markets rally in expectation of results.
All ten Dow Industrial Groups were ignited, led by Basic Materials again, up 6.44%; Industrials were second up 3.86% followed by Financials + 3.47% and Oil and Gas + 3.37%; Consumer services rose 3.30%; Consumer Goods 3.20%; technology 3.19%; Utilities, recovering from terrible weather rose 2.85%; Health Care was up 2.28% and Telecommunications up the least +1.0%.
Greece announced its austerity plan and the European banks all left their benchmark rates unchanged. 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 how much Germany steps up to the plate. The Greece Prime Minister will be at the White House this week. There is no good choice to be made and that is why it is a tragedy.
Germany has its own problems with a nothing GDP only ( 0.5% )a tad above flat economic growth. All this might be moot if it weren’t the influence of the greenback which had little change on the week.
Market Laboratory – Weekly Changes
( Prices taken from Barrons )
New Stock Recommendations
No New Stock Recommendations this week
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.
Economic Data
Economic data was mostly positive all week but nothing compared to the markets’ bullish action. Participants on Friday, were relieved to find that the Nonfarm payroll fell by 36,000 jobs instead of the 68,000 job losses expected. The Unemployment rate was also 9.7% a notch better than the 9.8% consensus. Earlier in the week, ISM Manufacturing rose to 53.5 well above 0.5 expected.
Retailers were announcing better same store sales despite the snow storms which seemed to surprise most. Negatively, Pending Home Sales fell 7.6%, a huge drop when a 1% monthly increase had been thought to be in the cards.
THIS WEEKS ECONOMIC NUMBERS and Media DATA
INDEX OPTION RECOMMENDATIONS
Two weeks ago we bought the DOW (DIA) March 106 Put at 2.76. Our stop of 10,440 was hit last week and we got out at 2.25 for a small loss. The market is very overbought so a pullback (which could be sharp) is likely to start this week. Buy the DOW (DIA) 108 Put when the DOW is at 10,650.
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
ANF- Abercrombie & Fitch- 42.35- has rallied from support at 30 to resistance at 40-42 in two months so is very overbought. Should now pull back. Buy the ANF May 42 Put- 2.70- for a move back to 38 and then lower. Place a stop loss on the option when the stock closes over 45. Take half profits when the stock is at 38.
IDCC- InterDigital- 25.78- appears to be basing in the 25-26 area and looks ready to break out to the upside. Buy the IDCC April 25 Call- 1.50- for a move back to 27 and then higher. Place a stop loss on the option when the stock closes below 24. Take half profits when the stock is at 27.
CSX- CSX Corp 48.97- has rallied from support at 42 to resistance at 48-50 in one month so is very overbought. Should now pull back. Buy the CSX April 50 Put- 2.50- for a move back to 46 and then lower. Place a stop loss on the option when the stock closes over 53. Take half profits when the stock is at 46.
Option Comments
Profits were taken on half the CSR March 7 ½ call option position and on half the HITK March 20 call option when the stocks reached their initial targets. We were stopped out of the DUG March 14 Call option and the GG March 39 Put option.
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 a multiday rally was likely last week since last week was the first week of the month when pension and 401k money comes into the market and during the previous week the CBOE put/call ratio was over 1.00 three days in a row which showed extreme pessimism (and was thus bullish). That is exactly what happened with a sharp rally last week. We have an intermediate cycle now in early-March (plus or minus a week) and then a longer term cycle in April-May. We expected the early March cycle to be a low but it now clearly looks like it will be a high (we should have expected this based on the very oversold/extreme pessimism bottom made on February 5). The short term advance/decline oscillator is currently extremely overbought but option numbers are neutral at best (there was still a lot of put buying last week). A pullback (which could be sharp) is likely to start this week to work off the oversold condition and then we expect the rally to continue into the April (possibly May) cycle high. Initial support is at DOW: 10,376, S&P 500: 1113-1116 and QQQQ: 45.40 and then at the February 25 intraday lows at DOW: 10,186, S&P 500: 1086 and QQQQ: 43.83. Breaking the initial support would indicate that a larger selloff was in progress. Good support is at the February 5 lows at DOW: 9,835, S&P 500: 1044 and QQQQ: 42.12. Initial resistance is at the January 19 highs at DOW: 10,730, S&P 500: 1151 and QQQQ: 46.64. 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 more sell-offs this year. However, every bear market has several good rallies that can last from a few weeks to many months ( called a cyclical bull market in a secular bear market ) which we have successfully played 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 10,376-10,430: Resistance DOW 10,730
QQQQ 45.05 Resistance 4664
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 next intermediate cycle is now in early March (plus or minus a week) which we expected to be a low but now clearly will be a high (we should have expected this based on the very oversold/extreme pessimism bottom made on February 5). 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). An intervening low is expected first to work off the current overbought condition.
Hypothetical Trading Results showed a loss last week as profits from the HITK and CSR calls were not enough to offset larger losses in the Dow and dug puts a net loss of $1583 which reduces profits for the year to $ 9,732.00.
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