Issue 299
Posted: March 29th, 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 30, 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
Stock Option Recommendations
New Recommendations
IYR- Real Estate ETF- 50.11- rallied from 42 to 51 in a month and appears to have formed a small top formation. Should now pullback. Buy the IYR May 51 Put- 2.35- for a move back to 48 and then lower. Place a stop loss on the option when the ETF closes above 53. Take half profits when the ETF is at 48.
ENZ- Enzo Biochem- 6.24- has formed a large 5 month bottom formation and a close over 6.40 would be a breakout. The Company won a patent infringement law suit (in the appeals court) on Friday so could have a good move. Buy the ENZ July 7 1/2 Call- 0.40- for a move back to 7 1/2 and then higher. Place a stop loss on the option when the stock closes below 5. Take half profits when the stock is at 7.50.
Option Comments
The rally last week resulted in three of our Put Options ( DIA, DECK and ANF ) being stopped out.
Market Laboratory – Weekly Changes
( Prices taken from Barrons )
New Stock Recommendations
SDS- Triple Inverse S&P 500 ETF- 31.17- we will try to play the expected pullback with this ETF. We will be happy with a small profit. Take half profits when the ETF is at 32.50. Place a stop at 30.
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:
Our UUP (US Dollar ETF) hit our initial target and half profits were taken. Our DOG (inverse DOW ETF) was stopped out for a small loss. 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.
FUNDAMENTAL NEWS
Most major indexes continued higher in a volatile week with plenty of two-sided action. Finally, among major indexes, only the Transportation average was lower, a modest -33.82 or -0.77%. The Dow and Nasdaq continued higher for the sixth week consecutively out of the last seven while both the Russell and S&P 500 were up the fifth week out of the last six. The equity markets withstood a huge dollar up-move Wednesday as the S&P lost 0.5% on geopolitical concerns. Markets resumed their upward course Thursday after German Chancellor Merkel said her government would back emergency support which would come from a combination of the IMF and joint bilateral help. Her one stipulation was the aid had to be a “last resort.”
Financials were very strong leading all Dow Groupings, up 2.99% followed by Consumer Services up 2.71% Basic Materials gained a much more modest 1.76%; Technology was up 1.7% followed by Industrials + 1.29%. Consumer Goods remained on the winner’s list at plus 0.74%, while telecomm was up just a tad,+ 0.22%.. Oil and Gas was the biggest loser falling 1.61% followed closely by Utilities off 1.42%. Health Care fell surprisingly little seeming almost immune from the legislation – 0.35%.
THIS WEEKS ECONOMIC NUMBERS and Media DATA
Interest rates exploded as the treasury auctions of $ 118 billions of 2, 5 and 7 yr coupons disappointed. The U.S. needs low interest rates to pay off the huge debt and rebuild the economy. Treasuries will be a major focus as funding is urgently needed and if rates continue higher the bull market would likely fizzle.
INDEX OPTION RECOMMENDATIONS
Two weeks ago we bought the DOW (DIA) April 108 Put when the DOW was at 10,650. We bought the option at 2.60 and were stopped out last Monday when the DOW hit 10,850 last week.
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 108 put and the QQQQ July 48 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)
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 short term advance/decline oscillator was overbought and the market was very extended to the upside so there should be an imminent pullback. The week before last had seen 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, the week after an up expiration is usually down. The market however continued higher for the first two days of last week, but divergences started appearing (considerably fewer new highs when the indices made higher highs), there was a loss of upside momentum and the short term advance/decline oscillator actually gave a renewed sell signal last Wednesday. On Thursday last week the S&P 500 and QQQQ had outside day key reversals lower (a higher high but a lower close) and all three indices appeared to have exhaustion gaps to the upside last Thursday morning (a big gap up at the open but closes well below the opening levels). Based on the technicals we should thus have a pullback which could be a sharp (and possibly short) to make the recent buyers and recently converted bulls to doubt/question their bullishness. However, Wednesday is the last day of the quarter so there will be portfolio “window dressing” by the institutions up until then and there has been and will be buying by fund managers who have missed the rally to show how invested they are. In addition, Thursday is the first day of the new month when 401k and pension money comes into the market. It is thus very possible that the market holds up or even goes higher this week irrespective of the bearish technicals. It will be interesting to see what happens this week. We had an intermediate cycle in early-mid March (plus or minus a week) and it was a high, which finally came in on Thursday March 25. After this cycle we have a longer term cycle in April-May which we expect to be a high after an intervening low. Most of the long term cycles converge in early-April and some in May. An important high (whether short, intermediate or long term remains to be seen) during this time frame is likely. Initial support is at DOW: 10,695, S&P 500: 1152 and QQQQ: 47.25 and then at DOW: 10,507, S&P 500: 1135 and QQQQ: 46.91. 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: 10,955, S&P 500: 1181 and QQQQ: 48.60. 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 we are playing accordingly. 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 1152 Resistance S&P 500: 1181
DOW 10,507 Resistance DOW 10,800
QQQQ 47.25 Resistance 48.60
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 was in early-mid March (plus or minus a week) which clearly was a high (which finally came in on Thursday March 25). 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). Most of the long term cycles converge in early-April and some in May. An intervening low is expected first to work off the overextended condition, although window dressing might hold the market up this week. The next intermediate term cycle is in late-July and we expect it to be a low.
Hypothetical Trading Results showed a loss last week of $4,350.00 as reducing gains for the year to $ 7371.00
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