Issue 302
Posted: April 18th, 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
April19, 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
Upcoming Mailing List Changes – Please Read
Within the next two to four weeks we will begin charging $10.00 per month to subscribe to/receive our weekly market newsletters. You also have the option to pay a flat yearly fee of $89.00 to subscribe. We will notify all of our current subscribers one week prior to making the switch from a free service to a fee based one to remind you once again of the changes being made. If you have any questions or comments please email mike@princetonresearch.com.
New Stock Recommendations
No new recommendation this week. We will wait for the pullback to be over before recommending a new stock. We are playing the downside with our SDS ETF position. We also believe oil prices are too high and headed for a set-back next week. ( this is a weekly tabloid ) However, we are looking to buy energy production stocks in the EagleFord shale area. EOG Resources and of course, Lucas come to mind. EOG has improved production of its Milton #3H well improving production from 668 barrels per day to 909 with a longer lateral. EOG has build up a huge position of at least 580,000 net acres. Both LEI and EOG share prices have doubled in the past year. For those who are long and want to keep their positions, a hedge with the SCO may be an alternative. The SCO goes up when oil prices go down. The SCO is a leveraged ultra-short ETF. Long the SCO means that you expect oil prices to retreat.
Market Laboratory – Weekly Changes
( Prices taken from Barrons and may be incorrect )
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:
We took half profits on a position of LEI bought at 0.47 at the opening , last Monday for 1.11. We will try to buy it back on a pull back to the 0.80-0.90 area. For those with cap gains problems, it is recommended to buy the SCO as a hedge to protect against a pull-back in the oil and gas complex. We will hold all portfolio stocks into our expected cycle top in May (we will sit out any pullback in April). If you have some nice profits in some of these stocks then you can raise your stops to protect your profits.
FUNDAMENTAL NEWS
The Goldman news came while the markets were struggling to hold newly achieved key levels, Which are 1200 in the S&P 500, and 11,000 in the Dow. After the session was over and The markets had absorbed the Goldman shock, ( indictment by the SEC ) all major Indexes remained positive for the week. It was the ninth consecutive up-week for both the S&P and the Dow. The DJ Transportation Index gained another 3% for the week notwithstanding higher oil prices and was the best gainer of the indexes. Goldman Sachs was the worst performing stock of the week down 10.3%. Just imagine what would have happened without the Goldman news. No doubt…. substantial new highs. JP Morgan Chase, General Electric and Bank of America posted better-than-expected results.
Intel earnings were outstanding and overshadowed most of the bearish events of the week.
Technology was the best of the Dow Industrial groups up 1.55%. Industrials were second up 1.10% and Consumer Services eked out a + 0.37% gain while Consumer Goods was flat. The six remaining groups were all lower for the week. Basic Materials was the worst performer, off 2.22%. Telecomm was off 1.46%; Health Care – 1.11% and Financials down 1.03%; Utilities were off 0.97%, while Oil and Gas fell 0.59%.
Economic Data
THIS WEEKS ECONOMIC NUMBERS and Media DATA
Economic reports were mixed. On the positive side, Retail Sales were buoyant at 1.6% besting expectations of 1.2%, best level since November . It was the third consecutive month of better sales growth. Auto Parts led with a 6.7% gain followed by Building Materials up 3.1%. Retail Sales were expected to be subdued amid the depressed levels of employment , tight credit and low home prices, but have surpassed expectations mostly due the auto sector, both sales of vehicles and parts. Also, positive, The CPI showed a small advance of 0.1%, but the CORE CPI was flat. In fact the six- month annualized CPI is just 0.6% and the three month -0.2%, both the lowest since 1960. Interest rates will remain low until there is some sign of inflation.
On the negative side, Employment news disappointed. Unemployment Claims rose 24,000 to 484,000 much worse than the consensus estimate of 440,000.
INDEX OPTION RECOMMENDATIONS
Last week Monday we sold the April DIA 112 Put and bought the May DIA 112 Put for 3.15 which will give us more time to play the expected pullback.
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 112 put and the QQQQ July 50 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.
OPTION SYMBOLS HAVE CHANGED. WE WILL NOW USE THE NEW TERMINOLOGY (stock symbol with expiration month and strike price)
Stock Option Recommendations
New Recommendations
CYD- China Yuchai- 18.93- after rallying from 14 to 20 has now pulled back to support at 17.50-18.50 and should turn back up again. Buy the CYD May 17 1/2 Call- 2.10 – for a move to 21 and then higher. Place a stop loss on the option when the stock closes below 17. Take half profits when the stock is at 21.
EDU- New Oriental Education – 90.58- we have played this one before and lost money but we will try again. Has rallied from 67 to 94 in two months so should now pullback. Has a P/E of over 40. Buy the EDU May 95 Put- 6.90 – for a move back to 85 and then lower. Place a stop loss on the option when the stock closes over 100. Take half profits when the stock is at 85.
MGM- MGM Mirage – 14.37- has rallied from 10 to 16 in two months so should now pullback. Buy the MGM May 15 Put- 1.44 – for a move back to 13 and then lower. Place a stop loss on the option when the stock closes over 16. Take half profits when the stock is at 13.
Option Comments
Nine (9) of our options expired on Friday. We lost on most of our put options because of the rally the past few weeks (irrespective of the bearish technicals and sentiment indicators) and the profits on our call options were sharply reduced (or even lost) because of the sharp selloff on Friday. We hope you took larger profits than we did on the calls.
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 based on the bearish technicals and on the extended condition of the market we should 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. We also wrote that last week was option expiration week when the shorts and option writers are often squeezed so the market might still hold up last week or even go higher. That is exactly what happened. The market can now finally react to the bearish technicals such bearish momentum divergences, a clear loss of upside momentum (exhaustion) when the new highs were made, some put/call ratios are at extremely low levels (the CBOE equity put/call ratio is at 10-year lows-which is extremely bearish) and the short term advance/decline oscillator is back on a sell signal after making lower highs. All these technicals will eventually matter. A pullback (which could be sharp) is thus still expected and very likely started this past Friday. The week after an up option expiration week is usually down so this should be a down week. The next cycles we have are several longer term cycles now in early-mid April (plus or minus a week) and some in May and we expect both to be highs with an intervening low. An important high (whether short, intermediate or long term remains to be seen) during this time frame is likely. A top may have come in on Thursday April 15 at DOW: 11,155, S&P 500: 1214 and QQQQ: 50.19.
We are in a secular bear in a cyclical bull market that could last another few weeks. Sell-offs like we have seen can be expected more frequently as the irratic behavior IS SYMPTOMATIC OF DISTRIBUTION. A top in the April – May period is expected, but more bearish surprises should be expected anytime. Be prepared with some shorts, or Long ETF’s geared to benefit from a sell-off such as the SDS ( triple inverse S&P 500 ) which goes up as the S&P goes down. You must be prepared with a “ balanced portfolio.” You will never know when it is going to happen. 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 through April (possibly May) based on longer term cycles.
Support Levels: S&P 500 1182-85; 1161 Resistance S&P 500: 1214
DOW 10,948 Resistance DOW 11,155
QQQQ 47.74 Resistance 50.19
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 cycles we have are several longer term cycles now in early-mid April (plus or minus a week) and some in May and we expect both to be highs with an intervening low. It is possible that the mid-April high came in last week Thursday April 15. An important high (whether short, intermediate or long term remains to be seen) during this time frame is likely. The next intermediate term cycle is in late-July and we expect it to be a low.
Hypothetical Trading Results showed a net loss last week of $6,115.00 decreasing gains for the year to $ 921.00. The huge losses were mostly due to an abundance of puts expiring worthless. profits in lucas both the latest half and the half not previously counted from January saved us from going negative on the year.
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