Issue 303
Posted: April 26th, 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
April26, 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
New Stock Recommendations
CHBT- China-Biotics- 17.99- we are already long this stock in our portfolio (bought at 14.97) but the fundamentals are so promising that we will add an additional half position. The company manufactures probiotics and just started production in a newly completed facility which will add significantly to output. Is growing at around 50% a year and is selling at only around 12 times estimated earnings so is very cheap. Place a stop at 15.
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 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. We are playing the expected pullback with our long SDS (triple inverse S&P 500.
FUNDAMENTAL NEWS
Earnings were the dominant feature of the week as everyone was looking for top line growth. Most exceeded expectations: Apple was out of sight; American Express, Amazon, Capital One, Citigroup, Microsoft, McDonalds, San Disk, Starbucks, Goldman and United Health. Some missed Including: AT&T Amgen, Coke, Nokia, Pepsico and Wells Fargo.
Nine of the ten Dow Industrial groups were higher led by Oil and gas up a healthy 4.31%; Industrials were second up 3.37% followed by Financials gaining 3.25%; Consumer Services was fourth up 3.03% followed by Utilities + 2.69%; Basic Materials was sixth, up 2.34% and Technology + 1.73%; Consumer Goods was in eighth spot up 1.27% followed by Telecomm up just 0.30%. Health Care was the only negative declining slightly -0.92%.
The market is still following the greenback inversely. When rumors flew concerning Greece’s deficit above 13.6% of GDP the dollar rallied to 82 and yet equities came back again from weakness. As the Greek turmoil situation recedes ( as they all do ) the dollar may fall again boosting equities. Companies in the EagleFord Shale such as Lucas ( LEI: $ 1.23 ) and EOG ( EOG: $ 113.72 ) continue to rally as there is no stopping this phenomenon., The SCO can be used to balance to buy on dips to protect in the event crude prices weaken. Have a balanced position using ETF’s and let the market tell you what to do.
Treasuries have a big week ahead. $ 178 Bln will be auctioned. Low interest rates have been the engine that drove this bull market. They need to stay that way as the bull has to be fed every day.
Economic Data
THIS WEEKS ECONOMIC NUMBERS and Media DATA
Leading indicators surprised to the upside at 1.4% vs expectations of 1.1% and the prior month’s reading of 0.4% revised higher from the original release of +0.1%. It was the fastest monthly increase since May 2009 easily outperforming expectations. The manufacturing workweek increased from 40.5hrs to 41.0hrs; also, the interest rate spread tightened a bit from 3.56% to 3.54%. On the negative side, non-defense capital goods expenditures declined, rather disheartening.
Also, on the negative side, Employment news disappointed again although not really as bad as the previous week.. Unemployment Claims were 456K the consensus of 450K but better than the previous week of 480K which had been also than the consensus estimate of 440,000. The numbers seem always worse than the estimate as employers remain reluctant to hire.
INDEX OPTION RECOMMENDATIONS
Last week Monday we bought the May DIA 112 Put for 3.15 to play the expected pullback. We are holding it at a slight loss. Place a stop at 11,300 and take half profits at 10,900.
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
ENSG- Ensign Group- 17.81- has been trading between 17 and 18 and looks like it wants to break out to the upside. Buy the ENSG May 17 1/2 Call- 0.70 – for a move to 19 and then higher. Place a stop loss on the option when the stock closes below 16 1/2. Take half profits when the stock is at 19.
FXI- Chinese Stock ETF – 42.05- we have played this one before and made money so we will try again. Rallied from 40 to 44 in two weeks and has now pulled back to support at 41-42. Should now try to re-rally. Buy the FXI May 41 Call- 1.77 – for a move back to 44 and then possibly higher. Place a stop loss on the option when the ETF closes below 40. Take half profits when the ETF is at 44.
XRT- Retail ETF – 45.12- we have played this one before and lost money but we will try again. Has rallied from 32 to 45 in two months so is very overbought and should now pullback. Buy the XRT May 47 Put- 2.22 – for a move back to 43 and then lower. Place a stop loss on the option when the ETF closes over 47. Take half profits when the ETF is at 43.
XLF- Financial ETF – 16.78- we have played this one before and made money we will try again. Has rallied from 13 ½ to 17 in two months so is overbought and should now pullback. Buy the XLF May 18 Put- 1.30 – for a move back to 16 and then lower. Place a stop loss on the option when the ETF closes over 18. Take half profits when the ETF is at 16.
Option Comments
We took half profits on our CYD and LINC May calls when the stocks hit their initial target levels. We got stopped out of our IYR 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 January 25, 2010, November 23, October 23, August 24, July 20, newsletters.
Technical Information
We wrote in last week’s letter the market can now finally react to the bearish technicals such as bearish momentum divergences, a clear loss of upside momentum (exhaustion), some put/call ratios 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 making lower highs while the market is making higher highs. All the bearish technicals and sentiment indicators will eventually matter. Also, the market is extended to the upside with the DOW up 11 out of the past 12 days. A pullback (which could be sharp) is thus still expected and there was one on Friday April 16 and on Thursday morning April 22 but in each case the market bounced back. The next cycles we have are several longer term cycles now in 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 came in on Thursday April 15 but higher highs were made Friday April 23 at DOW: 11,206, S&P 500: 1218 and QQQQ: 50.57 which could be the high we are looking for or the high will come in this week. Initial support is at the April 19 lows at DOW: 10,974, S&P 500: 1183 and QQQQ: 48.90 and then at DOW: 10,844, S&P 500: 1175 and QQQQ: 48.24. Breaking the second support levels would indicate that a larger selloff was in progress. Good support is at the early March lows at DOW: 10,507 S&P 500: 1035 and QQQQ: 45.40. Initial resistance is at DOW: 11,240, S&P 500: 1220 and QQQQ: 51.00. A close above these levels would indicate that the rally was still in progress, irrespective of the bearish technicals and sentiment indicators. 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 the April-May time frame based on longer term cycles.
Support Levels: S&P 500 1182-85; 1175 Resistance S&P 500: 1220
DOW 10,974.10,844 Resistance DOW 11,240,11, 300
QQQQ 48.90;47.74 Resistance 51.0 and 52.90
CYCLES
The current cycles we have are several longer term cycles now in 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 Friday April 23 or will come in this week. An important high (whether 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 gain last week of $577 increasing gains for the year to $ 1498.00.
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