Issue 306

Posted: May 17th, 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

May 17, 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 markets do what they want to do and then the analyzers search for reasons why it happened.

All ten Dow Industrial groups were higher led by Industrials up 3.90%, followed by Technology plus 3.74% and then Utilities up 3.04% and Basic Materials which last week were off over 9%, gained back 3%. Consumer Services gained 2.55% and Consumer Goods 2.42%. Telecommunications gained 2.34% and OIL and Gas 1.79%. Financials were up 1.76%; Health Care was last up 1.04%.

Oil stocks were buoyant upon news that President Obama was lifting off-shore drilling restrictions. However, now with the latest BP oil disaster, psychology has changed and the many oil stocks that participated in the rally including British Petroleum ( BP: $ 46.87 ) which reached $ 60.98 on April 15th.Apache Oil ( APA: $ 94.28 ) reached $ 109.49 and Schlumberger ( SLB: $ 64.88 ) reached $ 73.99. Anadarko ( APC: $ 57) was up to $ 75. Oil companies that are not drilling off shore such as EOG ( EOG: $ 106 ) and Lucas ( LEI: $ 1.99 ) have had only minimal declines. Additionally, they are in the prolific Eagleford Shale area in Southern Texas which should now get a lot more attention when buying interest returns to the complex..

Oil in general is hampered by a sudden avalanche of supply at key delivery points. Cash Prices have plummeted from $ 87 to below $ 73 in a matter of a few days.

Australian Mining companies will have to dig deep to pay the new 40% profits tax following the government announcing such plans. Australian owned mining companies plummeted in anticipation of and after the news. Stock traders are fearing something similar here to help pay down the deficit.

Market Laboratory – Weekly Changes
( Prices taken from Barrons and may be incorrect )

Huge Profits Last two Weeks well beyond Expectations

New Stock Recommendations

TBT- Short Long Bond ETF- 41.79- It goes up when the long bond goes down (higher interest rates). The Greek/Euro crisis has led to a rush into bonds and they are now extremely overbought so should pullback. This crisis will end or at least subside. Place a stop at 38 and take half profits at 45.

FXI- China Top 25 Shares ETF – 38.88- Chinese stocks have dropped sharply the past several months so are due for a bounce. We will try to play this bounce with this ETF. Take half profits at 42. Place a stop at 36.

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 did not take last week’s new stock/ETF recommendations because of the sharp rally (around 400 DOW points) at the open last Monday. The opening prices were just too far from our recommended prices making our stops and half profit points meaningless. We have the same two recommendations this week

Economic Data
THIS WEEKS ECONOMIC NUMBERS and Media DATA

Retail Sales up 0.4%, better than the expected 0.2% were considered disappointing. The gross number as provided by the U.S. Census Bureau which conducts the “Advance Monthly retail Trade and Food Services survey provides an estimate through a sampling of about 5,000 employer firms. The gross number of approximately $ 366 Billion ranks among the highest numbers ever. Excluding Autos, they were also up 0.4% although lower than the consensus of 0.5%. On a year-over-year comparison, Retail Sales increased 8.8%.

INDEX OPTION RECOMMENDATIONS

A month ago we bought the May DIA 112 Put to play the expected pullback. Our initial sell target was at 10,900 where we took half profits. We took the remaining half profits at the open last Monday, which was unfortunate because of the sharply higher open last Monday.

We will look to buy puts specifically on a rally this week, which is an options expiration week ( usually causing shorts to cover ) into our cycle high expected late-May (plus or minus a week) to play the subsequent selloff.

For investors it has continually been recommended that some puts are held to protect one’s portfolio (portfolio insurance) against sharp market sell-offs exactly as we had just over a week ago. 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.

OPTION SYMBOLS HAVE CHANGED. WE WILL NOW USE THE NEW TERMINOLOGY (stock symbol with expiration month and strike price)

Stock Option Recommendations

New Recommendations

FXI- China Top 25 Shares ETF – 38.88- dropped from 44 to good support at 36-38 in a month and appears to be forming a bottom formation with a higher low. Buy the FXI June 37 Call- 2.80 – for a move to 41 and then higher. Place a stop loss on the option when the ETF closes below 36. Take half profits when the ETF is at 41.

HITK- Hi-Tech Pharmacal – 23.79- has been trading between 21 and 25 and looks like it wants to break out to the upside. Buy the HITK June 22 1/2 Call- 2.25 – for a move back to 26 and then possibly higher. Place a stop loss on the option when the stock closes below 21. Take half profits when the stock is at 26.

FCX- Freeport-McMoRan – 69.72- appears to have made a large top formation and looks like it wants to break down. Buy the FCX June 70 Put- 4.15 – for a move back to 65 and then lower. Place a stop loss on the option when the stock closes over 75. Take half profits when the stock is at 65.

GG- Goldcorp – 45.68- has rallied back to resistance at 46. Gold is in a parabolic blow-off and will correct sharply soon. Also, futures traders are 98% bullish on Gold (a bullish extreme!!-which is very bearish). GG will correct once Gold corrects and it will. Buy the GG June 46 Put- 2.55 – for a move back to 42 and then lower. Place a stop loss on the option when the stock closes over 48. Take half profits when the stock is at 42.

Option Comments

We took remaining half profits on our ANF, DIA, XRT, AMZN and XLY put positions at the open last Monday. That was unfortunate because of the sharp rally at the open (around 400 DOW points) so we got a lot less for our put options than we expected. We have 8 option positions expiring on Friday and we will hold all until expiration (and use closing prices on Friday) except for one. Take the remaining nice half profits on the SCO call option at the open on Monday.

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 )
  • Subscribers can follow us on Twitter or call 702 650 3000 for up to date information.

Note: Previous closed out option positions can be found in the May 10, 2010, January 25, 2010, November 23, October 23, August 24, July 20, newsletters.

Technical Information

We wrote last week that the short-term advance/decline oscillator was extremely oversold so a snap back rally was expected. Also, put option buying had picked up sharply the previous week (the CBOE and Total put/call ratios were over 1.00 on Wednesday, Thursday and Friday which showed extreme bearishness and was thus short term very bullish). The sharp rally last week Monday was thus expected but it was even larger than we expected. The short term advance/decline oscillator is now very oversold again (it never even got back to neutral during the rally early last week. The market can now turn up again if it wants to since sentiment is still very bearish with put/call ratios still very high (the CBOE put/call ratio was over 1.0 six out of the last eight days- showing extreme bearishness) which is bullish. Also, this week is option expiration week which frequently (but not always) has a bullish bias because the shorts and option writers are often squeezed. A rally does not have to start immediately just because the market is very oversold and sentiment is at extremes, but it will come soon. It is likely that the market rallies, once the selloff is complete (possibly early this week), into option expiration (our next cycle later this month (plus or minus a week)). We had several longer term cycles in mid-April (plus or minus a week) and have some in late-May (plus or minus a week) and we expect both to be highs (the May high will likely be a lower high) with an intervening low which was very likely made May 6. An important high (whether intermediate or long term remains to be seen) during this time frame is likely. The mid-April top came in on April 26 at DOW: 11,258, S&P 500: 1220 and QQQQ: 50.65 and a low was made on Thursday May 6 when a “trading glitch” (program and/or high frequency trading) caused a sharp (around 700 DOW points in 15 minutes) decline. The lows made during that period are thus not realistic lows. Realistic good support is at the February 25 lows at DOW: 10,186, S&P 500: 1086 and QQQQ: 43.83 and then at the February 5 lows at DOW: 9,835 S&P 500: 1044 and QQQQ: 41.55. Initial resistance is now at DOW: 10,965, S&P 500: 1175 and QQQQ: 48.98. A close above these levels would indicate that the rally into late-May was still in progress. The parameters to watch are thus very clear and let the support and resistance levels govern your trading and your stops.

Support Levels: S&P 500 1086 ; 1044 Resistance S&P 500: 1175
DOW 10,378 and 10,186 Resistance DOW: 10,965
QQQQ 43.83 Resistance QQQQ: 48.98

CYCLES

The current cycles we had are several longer term cycles in mid-April (plus or minus a week) and have some in late-May (plus or minus a week) and we expect both to be highs with an intervening low. The mid-April high came in Monday April 26 and the intervening low came in on Thursday May 6. The market is expected to rally into late-May (plus or minus a week) and likely make a lower high than in April. An important high (whether intermediate or long term remains to be seen) during this time frame is likely and was very likely made April 26. 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 $4,110.0o increasing gains for the year to $ 13,832.00.

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
mike@princetonresearch.com
www.PrincetonResearch.com