SHANDA INTERACTIVE (SNDA) CLIMBED ALL THE WAY TO EARNINGS BAGGING US A SWEET FOUR DAY SEVENTY-PERCENT PROFIT!

Greetings Options Winners, Trade Spinners and Profit Getters,

This past Tuesday the markets fell out of bed but managed to climb most of the way back by the end of the week. All that volatility added up to some great profits...

SHANDA INTERACTIVE (SNDA) CLIMBED ALL THE WAY TO EARNINGS BAGGING US A SWEET FOUR DAY SEVENTY-PERCENT PROFIT!

We took half our position off the table the day before the announcement and the other half off the next morning for some excellent over-all profits. The stock reversed its initial spike higher Friday morning but with a 61% earnings increase SNDA is likely to keep climbing.

Meanwhile our two older put plays continue to trade sideways as the market swings both ways looking for direction. To try and determine the course over the next week let's take a good look at...

WHICH WAY THIS MARKET IS HEADED

The SPX is still trending higher and dip buyers showed up exactly where you would have expected on the uptrend line at 992. That gives us a clear exit point for longs if that 992 level breaks. Resistance is at 1040--a failure there would trace an ominous 'double top' and of course a break higher is bullish. If the SPX can't break through resistance this week the incentive increases for funds to lock in profits. It is not impossible to have a bullish September but it's extremely rare.

The Nasdaq dipped to support on Wednesday before bouncing higher back into its uptrending channel. With chip stocks upgrading guidance almost daily you would expect the Nasdaq to start showing a trend higher but the month-long move has been sideways.

The big news last week was the Non-Farm Payrolls for August showing a loss of 216,000 jobs---slightly better than the -225,000 consensus estimate. However the two prior months were revised lower to show a loss of an additional 49,000 jobs which makes you wonder what the revised number for August will eventually be.

Even though the markets celebrated the number as being 'less bad' the report still has some worrisome undertones. All sectors lost jobs except for education and healthcare. Last month's losses jumped the unemployment rate from 9.4% in July to 9.7%--the highest unemployment rate since 1983.

Nearly 7 million people have lost their jobs since the start of 2008. A total of 15 million are officially unemployed. Temp agencies, usually the first to hire when recovery begins, cut 6,500 jobs.

After shrinking two months in a row, the number of "underemployed workers" rose 278,000, to 9.1 million. 'Underemployed' is what the government calls people forced into part-time work because they can't find a full-time job.

Then there are "marginally attached workers" - the unemployed who have given up looking for work but still want a job--that number now exceeds 2.3 million.

Put the officially unemployed, the "underemployed" and the "marginally attached" together and you get what the government calls the U6 measure of unemployment. That number jumped a whole half a percentage point in August, to 16.8% which many consider to be the real unemployment rate.

It's hard to imagine the economy staging the recovery the stock market is envisioning with that level of unemployment and a consumer saving every penny they can--which makes one wonder how long this current rally can last.

The economic calendar for this week is light with almost nothing of importance in the normal reports. The Fed Beige Book is the only event that may be of interest to the market. Everything else is either a weekly report where surprises are negligible or a lagging report for July. That makes the Treasury auctions for $128 billion in bills, notes and bonds a likely focal point. The auctions will start on Tuesday and go for three days.

For the entire week there will be $38 billion in three-year notes, $20 billion in ten-year notes, $12B in thirty-year bonds, $29B in 13-week bills and $29B in 26-week bills. Almost every auction week we are seeing a new record in new debt and it's surprising rates haven't increased. Talk of a double dip recession is growing and that is keeping auction interest high and yields low. Plus with the Fed continuing to take up any excess by buying the Treasuries bonds, rates will continue to be suppressed. How long rates can stay low however remains in question.

Just a few days ago, the U.S. Treasury Department revealed that China actually reduced its note and bond holdings by $25 billion in June. Although China did not sell shorter-term Treasury bills - and isn't expected to - it's still the largest amount of Treasuries China has ever sold in a single month. This news was ignored in the media but it's a huge development.

In 2006, China and Hong Kong accounted for more than 50 percent of the increase in the amount of Treasury debt sold to the public. Then in 2008 China's share fell to 22 percent as the U.S. government increased its public debt by a record $1.2 trillion.

Then in the first half of this year, China and Hong Kong acquired only 9 percent of the more than $800 billion worth of new Treasury bonds that were sold - and now in June, China became a net seller of U.S. Treasury notes and bonds.

This is a really big deal because Washington's most dependable source of loans to finance our out-of-control deficits is drying up, which means demand for longer-term Treasuries is softening--a fact you can see in the bump higher in the TBT last week.

Which means we can count on much higher interest rates in 2010 and beyond. The problem is rising interest rates make borrowing more expensive curtailing both business financing and retail consumption--in fact higher rates will crush any chance of a vigorous recovery. Rising rates will also reverse rapidly rising stock prices the instant the market becomes aware of them.

For now however traders are pretty content with what is perceived as bullish economic indicators and market uptrends are still intact--just not quite as powerfully as they have been--the question is...

HOW DO WE MAKE MONEY ON IT?

The key to making money in a market like this one is to trade relative strength and weakness--in other words go long on the strongest stocks and short the weakest. It's also wise to maintain tight stops in case of any sudden reversals.

Fortunately we've got two plays this week--one bullish and the other bearish--with VERY attractive charts and fundamentals pointing in their respective directions.

Our first play is bullish and it's on a company that sells products people HAVE to have--and they do it better than anyone else in their sector. Instead of besting super low estimates like many other companies--when this company reported they actually turned in a profit increase over last year--enough to get investors flocking to the stock. The chart looks great on this one and so do the facts for what look to be some outstanding upside profits!

Our next play is bearish and it's on a stock in an industry that is absolutely floundering. Fortunately for us the stock bumped higher last week providing a great entry point in what looks to be a fabulous put play!

We've got two great set-ups on a market ready to move so let's get going...

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