Issue 297
Posted: March 15th, 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
March 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
The Dow Industrials is up 8 straight days, rising almost 5 percent during that period. According to Birinyi Associates, it’s just the 3rd time since 2000 the Dow has seen an 8-day winning streak.
Roubini vs Berinyi Who will be right? Laszlo Birinyi says the rebound in this economy will be stronger than most people expect. His forecast is based on the recent rally of the S&P 500 Index. He says,” The markets are suggesting that the economy has turned the corner and is going to do a lot better than most people anticipate.” Last May he said the S&P 500 would reach 1700 in the next two-three years.
Muriel Roubini, the now famous New York University professor says that the odds have increased the economy will worsen. “ There are risks associated with the exit strategies from the massive monetary and fiscal easing. Policy makers are damned if they do and damned if they don’t.” Roubini also says the recession will be formally over by year-end.
The rally last week was anemic failing to make new Dow and S&P highs, a diversion from the surge found in the Dow Transportation, Russell and Nasdaq indexes.. Nonetheless, bulls held the upper hand not letting it get away from them.
Seven of the Dow Industrial Groups were up on the week led by Financials, + 2.66%. Telecommunications was next up 2.64% and Technology gaining 1.71%; Industrials rose 1.56% and then Consumer Services 1.19%; Oil and Gas gained 0.69% and Basic Materials 0.57%. Last week Basic Materials blew out the lights gaining 6.44%, which makes just about a 10% gain over the past three weeks. The remaining three groups were weak: Utilities –0.06%; Health Care -0.10% and Consumer Goods -0.12% were all down slightly.
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.
Model Portfolio Comments/Changes
Some of our portfolio stocks (such as LINC, CHBT, HITK, EBIX and CSKI) did well last week. We will hold all portfolio stocks into our expected cycle top in April-May. If you have some nice profits in some of these stocks, then you can raise your stops to protect profits.
Economic Data
Retail sales were the big surprise early Friday morning as most economists influenced by the bad weather across the nation had forecasted a decline of 0.2%; instead there was a nice increase of 0.3%. Later, Michigan Sentiment was reported slightly weaker than a 74.0 consensus at 72.5.
Core Retail Sales, which exclude autos, was even much stronger at + 0.9% in February following a strong 0.6% gain in January. The core data confirm that consumers are feeling positive about the economy. Out of 13 retail sectors according to briefing.com, 11 posted positive gains, including an unexpected 3.7% increase in electronic and appliance stores. Retail Sales are expected to remain weak given the current trends in employment and the negative wealth impact from depressed prices of homes.
Wholesale Inventories declined 0.2% in January following a drop of 1.0% in December. The consensus estimate called for an increase of 0.2%. With Sales increasing at the retail level, wholesale stocks are at the lowest levels in the last decade. Inventory/Sales ratios are well below historical levels. Much buying will be needed for re-stocking inventories if current demand is to be met.
THIS WEEKS ECONOMIC NUMBERS and Media DATA
INDEX OPTION RECOMMENDATIONS
The market is extremely overbought and upside momentum is waning 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 or higher.
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) July 105 put and the QQQQ July 46 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
XLF- Financial Sector ETF- 15.54- has rallied from 13.50 to resistance at 15-16 in two months so is overbought. Should now pull back. Buy the XLF April 16 Put- 0.70- for a move back to 15 and then lower. Place a stop loss on the option when the ETF closes over 16.50. Take half profits when the ETF is at 15.
CSKI- China Sky One Medical- 17.19- appears to be basing in the 15-17 area and looks ready to break out to the upside. This is an earnings play with earnings (which are supposed to be really good) coming out on Wednesday. Buy the CSKI April 17 1/2 Call- 1.10- for a move back to 19 and then higher. Place a stop loss on the option when the stock closes below 14. Take half profits when the stock is at 19.
SLV- Silver Bullion ETF- 16.76- has rallied from 14.50 to resistance at 17 in two months so is overbought and appears to be forming a small top. Should now pull back. Buy the SLV April 18 Put- 1.43- for a move back to 15.50 and then lower. Place a stop loss on the option when the ETF closes over 18. Take half profits when the ETF is at 15.50.
DECK- Deckers Outdoor- 130.96- has rallied from 100 to 130 in a month so is very overbought and should now pullback. Buy the DECK April 135 Put- 8.20- for a move back to 115 and then possibly lower. Place a stop loss on the option when the stock closes over 136. Take half profits when the stock is at 120.
Option Comments
Profits were taken on half the EBIX March 15 call option (IFQCC) position and on half the IDCC April 25 call option when the stocks reached their initial targets. We have 6 half option positions and 1 full option position expiring on Friday. We will hold these options into expiration.
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 the market was extremely overbought but that option numbers were neutral at best (there was still a lot of put buying the previous week). We thus expected a pullback to start last week but the market has kept going up (the pessimism shown by the put buyers was correct with its contrarian indication). However, sentiment changed this past week with an increase in call buying (which is bearish). The short term oscillator is still extremely overbought so the likely hood of a pullback (which could be sharp) has thus definitely increased. Also, there is a bearish divergence between the DOW (which has not made a new recovery high yet) and the QQQQ and S&P 500 (which have) and these three indices are forming rising wedge chart formations which are usually bearish. Finally, the market is over extended, upside momentum is waning and there are signs of exhaustion. That pullback should start this week. However, this week is option expiration week when the shorts and option writers are often squeezed hence the market might hold up this week before there is a pullback. Or there could be a 1-2 day selloff before a rally into expiration. When the pullback does start it will likely be sharp to make the recent buyers and recently converted bulls to doubt/question their bullishness. We have an intermediate cycle now in early-March (plus or minus a week) and it will be a high, which either came in on Friday or will come in this week. After this cycle we have a longer term cycle in April-May which we expect to be a high after an intervening low. 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 DOW: 10,730, S&P 500: 1180 and QQQQ: 48. 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 1134,1113 Resistance S&P 500: 1180
DOW 10,507: Resistance DOW 10,730
QQQQ 45.40 Resistance 47.00-48.00
CYCLES
We had a short term cycle in early-mid February which 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 clearly will be a high (either it came in on Friday or will come in this week). 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. The next intermediate term cycle is in late-July and we expect it to be a low.
Hypothetical Trading Results showed a gain last week as profits from the EBIX and IDCC calls made profits of $ 2832 which enhances profits for the year to $ 12,564.00.
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