WE WERE STOPPED OUT OF OUR NEW AMAZON (AMZN) PUT PLAY AS THE COMPANY RECEIVED FOUR SEPARATE UPGRADES ON FRIDAY FROM BERNSTEIN, OPPENHEIMER, RBC CAPITA

This past week the markets dipped and then shot higher...

Normally a company retraces somewhat after as big a pop higher as Amazon had but after this many cheerleaders touted the stock it HAD to jump higher.

And that is why we use stop losses. Not we're back to cash with one open play and could use a couple winners this week. Fortunately we've got two extremely promising plays lined up. But before we get to them let's take a good look at...

WHICH WAY THIS MARKET IS HEADED

As you can see both indices made mighty rebounds from what looked like major breaks of their uptrend lines. The SP-500 ended up over 33 points on the week while the Nasdaq launched over 67 points.

This very bullish performance was in spite of some nasty employment numbers on Friday--which gives you an indication of just how bullish sentiment is right now--something we need to pay attention to.

The official unemployment rate jumped to 10.2% with 190,000 jobs lost in October--much worse than expected--and that only counts those recently unemployed and looking for work. The broader U6 unemployment rate rose to 17.5% from 17.0% in September.

The actual number of unemployed workers rose to 30.5 million people. That consists of 15.7 million officially unemployed, 9.2 million working part time or in temporary jobs because full time jobs in their field are not available and another 5.6 million workers no longer looking for jobs but willing to work if jobs were available. In spite of a lot of high hopes it's tough to count on a big economic rebound with more than 30 million people out of work.

The only other report on Friday was Consumer Credit for September. The report showed that credit balances are continuing to shrink at rapid rate with a -$14.8 billion decline in September. Revolving credit like credit cards dropped 12.5% while non-revolving credit like home equity loans fell -3.7%. Balances are expected to continue declining as long as folks stay worried--and that could be awhile.

It's interesting that the individual is tightening the ship in uncertain economic times while the government does just the opposite. This coming week will see another record debt auction by the Treasury with $81 billion being offered which is $6 billion over the last quarterly refunding.

The auction will raise money to pay off $38.5 billion in maturing securities and raise another $42.5 billion in new cash. The Treasury said last Monday that it would need to raise an extra $276 billion before year-end. They also said they could hit the legal debt ceiling as early as mid December. Since the Fed said it had completed its debt purchases this will be the first auction without the Fed as an underlying silent buyer. Without the Fed it would be smart to prepare for higher interest rates--a scenario that the markets won't react to very well.

However the markets have been buoyed by the hope of continuing outperformance in earnings expectations--and that optimism could continue into the end of the year.

With 440 of the S&P-500 already reported 80% of companies beat estimates. Only 14% missed estimates and 6% reported inline. The average surprise was 14.5% over estimates. As of Friday Thomson/Reuters says total S&P earnings for all companies reported came in at a -14.8% decline. At the end of Q3 analysts were expecting a -25% decline. Obviously everyone feared the worst but when the numbers came in better the markets climbed.

For Q4 the expectations are off the charts. The Q4 estimate is so great because most firms lost a ton of money in Q4-2008. If they just break even in Q4-2009 it would be a monster improvement. Every time there is an analyst upgrade to a stock like Amazon, GE or Travelers the S&P estimate for Q4 will change and the atmosphere is starting to look ripe for a year-end rally that makes the fourth quarter traditionally the most bullish. The only two big obstacles could be a very bad Christmas season and a rise in interest rates.

But interest rates may be slow to rise. The markets seem to be ignoring bad economic news. Primarily because bad news means the Fed is going to stay on the sidelines for a long time.

Estimates for a Fed rate hike are now closer to June than January. This means the dollar should continue to deteriorate and with the low interest rates banks can keep piling up the cash from the spread on the loans they do make.

So, if the Fed is on the sidelines indefinitely and stimulus dollars are still flowing then the general consensus suggests the markets should continue higher. Traders believe the worst is behind us and Q4 earnings are going to be in the range of a 150% improvement over 2008 even after they adjust for Q3 guidance--the question is...

HOW DO WE MAKE MONEY ON IT?

We've got two high-potential plays lined up this week and they are both bullish.

The first is on a health care stock that is climbing straight up--and should do even better after the house just passed the Healthcare bill. This is a stock you are going to want to jump on first thing Monday morning for what looks to be a very exciting ride.

Our second play grew earnings a whopping 37% over last year and STILL got whacked lower because expectations were so high. But now the stock looks to be bottoming and when this thing runs higher it can take off like a rocket--a rocket we'll be boarding first thing Monday.

We've got two great plays lined up on a market ready to move so let's get to it...

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