Issue 298
Posted: March 22nd, 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 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
FUNDAMENTAL NEWS
All the major indexes with the exception of the Russell posted gains for the week to the highest levels in more than a year. The fed had the major impact as it maintained its present course of low interest rates amidst a favorable policy statement for the economy. Earnings were also good but some of the weeks’ advances were given up Friday. Chairman Bernanke was also spotlighted in the news before the House Financial Services committee which appears to favor giving more power to the fed.
The Dow continued in the record books rising for the eighth day albeit on light volume, only to succumb on the ninth day to a high volume collapse. The times we are experiencing are the most calamitous in eight or nine decades with problems which no one can understand. Professional investors without a clue are arguing whether it is because of Quadruple Witching or the pending passing of a Health Care Bill.
The key in trading is whether you want to EAT well or SLEEP well. You can’t easily do both. In trading the stock market your emotions work against you. Your emotions are your worst enemy. The stock market, in its diabolical way, is always tempting you to do the wrong thing. You must be immune to the talk, the advice and the tips. You must learn to “read” the stock market, to learn the secret language of the stock market. Joe Granville, advises, “When you watch CNBC, turn off the sound. In that way, you won’t be influenced” by the ongoing and usually self-serving paid for bullish or bearish blather.
Nine of the ten Dow Industrial Groups were higher led by Telecommunications, up 2.17% followed by Industrials + 1.83% and then Oil and Gas, up 1.59%. Consumer Goods was fourth best gaining 1.48% and Health Care added 1.41%. Financials continued their winning ways although up only 1.33% followed by Utilities recovering from low usage due to bad weather, up 1.15%. Consumer Services was up 0.91% and technology barely up just 0.21%, while Basic Materials the big winner early in the month was the only group to post losses, down 0.63%.
Market Laboratory – Weekly Changes
( Prices taken from Barrons )
New Stock Recommendations
No New Stock Recommendations this week. We are waiting for our expected pullback 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 and CHBT) 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 your profits.
THIS WEEKS ECONOMIC NUMBERS and Media DATA
The economic data was mostly ignored as the PPI ( -0.6% vs -0.2% consensus ) and CPI all came in mild, below expectations while weekly jobless claims totaling 457K was in line with expectations.
INDEX OPTION RECOMMENDATIONS
Last week we recommended to buy the DOW (DIA) April 108 Put when the DOW was at 10,650. We bought the option at 2.60 and are holding it at a slight loss. We still expect a pullback that could be sharp. Take half profits at 10,450. Place a stop at 10,850.
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
DUG- Inverse Oil & Gas ETF- 12.40- we have played this one before with mixed results and will try again. Goes up when oil and gas stocks go down and vice versa. Appears to have bottomed and looks like it wants to break out. Buy the DUG April 12 Call- 0.70- for a move back to 13.50 and then higher. Place a stop loss on the option when the ETF closes below 11.50. Take half profits when the ETF is at 13.50.
HITK- Hi-Tech Pharmacal- 22.17- has dropped from 27 to support at 22 in a week so should now bounce. Buy the HITK April 22 1/2 Call- 1.25- for a move back to 24 and then higher. Place a stop loss on the option when the stock closes below 19. Take half profits when the stock is at 24.
EDU- New Oriental Education & Technology- 85.12- has rallied from 67 to 87 in two months so is overbought and appears to be forming a small top. Should now pull back. Buy the EDU April 85 Put- 3.10- for a move back to 80 and then lower. Place a stop loss on the option when the stock closes over 90. Take half profits when the stock is at 80.
Option Comments
We had 6 half option positions and 1 full option position expire on Friday. The results were positive considering the volatility as we had two very nice profits (on the CHBT and EBIX (IFQCC) call options).
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 January 25, 2010, November 23, October 23, August 24, July 20, newsletters.
Technical Information
We wrote in last week’s letter that the market was extremely overbought and extended so there should be an imminent pullback but that last week was option expiration week (when the shorts and option writers are often squeezed) hence the market might hold up into expiration before the expected pullback started. We also wrote that there could be a 1-2 day selloff before a rally into expiration. That is exactly what happened with a pullback last week Monday and after that a continuation of the rally into Thursday. By Thursday the short term oscillator was still extremely overbought and there had been a continued increase in call buying with some put/call ratios at very low levels (which is bearish) so the likely hood of a pullback had definitely increased. Also, there was a loss of upside momentum and some divergences. The selloff on Friday was thus no surprise. The week after an up expiration is usually down. That pullback that started Friday should thus continue this week. The shot term advance/decline oscillator actually gave a sell signal on Friday. It could be a sharp (and possibly short) pullback to make the recent buyers and recently converted bulls to doubt/question their bullishness. We have an intermediate cycle now in early-mid March (plus or minus a week) and it will be a high, which now appears that it came in on Friday March 19. 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: 10,570, S&P 500: 1135-1141 and QQQQ: 46.91 and then at DOW: 10,376, S&P 500: 1113-1116 and QQQQ: 45.40. Breaking the second support levels would indicate that a larger selloff was in progress. Good support is at the February 25 lows at DOW: 10,186 S&P 500: 1086 and QQQQ: 43.83. Initial resistance is at DOW: 10,800, S&P 500: 1170-1180 and QQQQ: 48. A close above these levels would indicate a larger rally (probably into early-April) 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 1135-1141 Resistance S&P 500: 1180
DOW 10,507 then 10, 378-10,440: Resistance DOW 10,800
QQQQ 4691 then 45.40 Resistance 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-mid March (plus or minus a week) which clearly will be a high (which appears to have come in on Friday March 19). 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 of $1,085.00 as our results were mixed but positive into option expiration adding gains for the year to $ 11,921.00
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