This past week we had plenty of action on our two 'explosive trades'--
BED BATH AND BEYOND (BBBY) SHOT HIGHER AFTER EARNINGS THIS PAST THURSDAY AND THEN QUICKLY REVERSED BLASTING US OUT OF THE TRADE FOR A QUICK ELEVEN PERCENT PROFIT!
THE DAY BEFORE WALGREEN'S (WAG) DID THE SAME WITH MORE GENEROUS RESULTS FOR A FAST THIRTY-FOUR PERCENT PROFIT!
AND THIS PAST MONDAY RIMM DROPPED SUDDENLY STOPPING US OUT OF BOTH SIDES OF THAT TRADE FOR A JUICY FORTY-FIVE PERCENT WINNER!
The idea on these 'both ways' trades is for one side of the trade to make up the combined cost of both position plus turn a profit--and it did in all three cases. But the real beauty of these trades is the protection you have in both directions because even the most reliable of chart patterns can throw us a surprise once in a while--and if you are betting all in one direction with short term options a reversal can be devastating.
So--are we permanently changing the way we trade? Not necessarily--sometimes the overall market and an individual stock is so determined to charge in a certain direction that trading in that direction makes a lot of sense.
We've got two such directional trades today and you'll be amazed at their potential--tiny entry prices with huge potential upside. To help see why these two trades make sense let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
Both the SP-500 and Nasdaq are still showing nice uptrends--but in most years we'll see profit taking in January. With the amazing runs we've had since August it wouldn't be surprising to see a pull back--in fact most analysts are predicting it.
And if there is a dip should we buy it? Strengthening economics and a whole lot of newly minted money trying to find a home suggests we should. The whole debt-built house of cards will come crashing down at some point but this market could climb quite a bit higher before that happens.
For one thing the all-important American consumer is started to warm those credit cards up again. Americans spent $36.4 billion in the 2010 holiday-shopping season, an impressive 15.4% increase from the prior year, according to a new survey.
The survey from MasterCard Advisors SpendingPulse, released on Wednesday, tracks national retail and services sales. It measured the period between Oct. 31 and Dec. 24.
“Today, e-commerce accounts for a much larger share of overall retail sales compared to a few years ago. And during this holiday season, it registered double-digit growth for 6 out of 7 weeks,” noted Michael McNamara, vice president at MasterCard Advisors SpendingPulse.
The survey showed consumers spent the most on apparel, with online apparel sales accounting for 18.8% of total sales for that category against 16.9% in 2009. Online electronics also logged big gains.
There were six days during the 2010 shopping season during which sales topped $1 billion against 3 days in 2009.
Since the consumer still makes up approximately two-thirds of the US economy a strong holiday season is a very positive sign.
Elaine Garzarelli was a partner and managing director at Lehman Brothers prior to starting her own company Garzarelli Research--in 1995. She was the analyst that correctly predicted the 1987 market crash. Elaine has thirteen indicators she follows and claims they are at the most bullish level in a decade at 71% positive. Above 65% is a buy signal, below 30% is a sell signal. Before the 1987 crash they declined to 9% prompting her to make her famous market crash prediction.
She said we should take a lesson from Japan and their QE program. When they implemented the program aggressively to lift themselves out of their recession the Nikkei rallied 50%. The second time they did it aggressively the market rallied 80%. When they stopped QE the market declined 50%. She claims QE does not specifically help the economy but it always spikes the stock market.
With the Fed facing another six months of QE2 Elaine says this is the best time to buy stocks in the last decade--and she may be right unless rising interest rates derail the party. Rates should be your 'canary in the coal mine' because if they keep rising the economy will contract.
It's ironic then that rising interest rates are actually helping to fuel this rally at least temporarily--as rising rates are killing the bond market. The bond bubble of 2010 is evaporating and that money is flowing into equities. The decline in the dollar is making equities more attractive and the rise in interest rates is making bonds less attractive. We are seeing a classic asset allocation rally.
While almost every analyst is expecting a strong market in 2011 most believe stocks are due for a pullback in January. Katie Stockton, Chief Market Technician at MKM Partners, said although stocks are overdue for some short-term weakness there is a silver lining. She wrote in a research note, while the S&P and most of its components are technically overbought, the index's ability to forge higher is a "phenomenon that is characteristic of strong and sustainable uptrends."
The S&P has risen +6% in December and +24% since the July lows. There were 3,400 new highs on the NYSE so far in December. Bullish investor sentiment is nearly 60% and clearly bearish by contrarian standards. The VIX hit a new nine month low on Thursday. By any measure we are watching what some would call irrational exuberance but there is still a lack of real conviction by the bulls.
Chances are excellent that before we'll see a new sustained leg higher there will be a pullback. The general consensus is for a 5% to 7% correction in January. Most analysts recommend taking profits early and then looking for an opportunity to get back in on the dip. The long-term view has not changed so any January dip should be considered a buying opportunity.
The third-year of a presidential term is typically bullish. That along with strong momentum, solid earnings, low interest rates, improving economic conditions, low taxes and QE2 should provide a good start to the year. So we've got generally bullish conditions with an excellent chance for a pullback, the question is---
HOW DO WE MAKE MONEY ON IT?
We've got two directional trades this week--one bullish and the other bearish. The beauty of these two is they both look totally determined to run in their respective directions no matter what the overall market is doing.
Plus they are cheap to trade--we can buy our positions for around .60 cents each and at that price it won't take much movement to really rack up the profits. We've got a low volume week ahead of us where a small amount of money can really move these stocks so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
Monday, December 27, 2010
Monday, December 20, 2010
This Week We're Knocking Down a 18% Return with an 89% Probability of Success!
As the U.S. economy continues its recovery, there’s a renewed sense of optimism during this holiday season. However, the markets are becoming increasingly complacent so be cautiously optimistic on bullish directional plays as we should expect to see more bad news coming out of the euro-nations in the coming months.
With the VIX dropping 8.5% to 16.11 this week, the cost of using options as insurance against the S&P 500 continues its decline and is now down from this year’s earlier high of 45.79 back in May. As a famous investor once said, “Be fearful when others are greedy and be greedy when others are fearful.” Regardless of sentiment or market direction, subscribers of “the Winning Secret” never give the Grinch a chance to ruin their holiday season. For this week, we’re looking at three great plays to start off the New Year:
For February:
• 88.95% - 89.16% probability of win, 15.74% - 17.65% return on investment.
• 87.96% - 88.87% probability of win, 12.87% - 13.90% return on investment.
For January:
• 90.24% - 88.38% probability of win, 8.70% - 13.64% return on investment.
The Markets and How They Affect Us
On Friday’s close, the U.S. stock market gained for a 3rd straight week, sending the S&P 500 to a two-year high, as better-than-estimated data on retail, manufacturing and housing boosted economic confidence.
The S&P 500 rose 0.3% to 1,243.91, finishing a 3-week rally which had been the longest run since Nov. 5th. The Dow also gained 81.59 points, 0.7%, to finish at 11,491.91. With strong corporate earnings, there is a renewed sense of optimism driven by the expectation that profits will continue to be strong.
As the U.S. recovery continues, investors may see growth between 3 - 3.5% next year. The economy grew at an annualized pace of 2.5% during the 3rd quarter - the U.S. economy definitely has some momentum building.
Overseas, there is growing concern that Europe’s debt crisis is worsening as Ireland’s credit rating was reduced due to declining financial strength and the cost associated with bailing out their lenders. Additionally, six Greek banks are currently under review for a possible downgrade a day after the country’s bond rating was put on a watch for a possible reduction.
Finally, Visa and MasterCard, the world’s two largest credit card companies, fell 17% and 13% after the Fed’s proposal on new rules that would offer to cut debit-card transaction fees by 84%; thereby, significantly impacting their business model.
What are the Secrets of the Week?
We have three plays for the week, two on equities and one on an ETF so let’s get started.
You can get in on this week's trades along with two new high-probability trades per week by clicking here now.
Stack the Deck on Every Trade,
Robert
With the VIX dropping 8.5% to 16.11 this week, the cost of using options as insurance against the S&P 500 continues its decline and is now down from this year’s earlier high of 45.79 back in May. As a famous investor once said, “Be fearful when others are greedy and be greedy when others are fearful.” Regardless of sentiment or market direction, subscribers of “the Winning Secret” never give the Grinch a chance to ruin their holiday season. For this week, we’re looking at three great plays to start off the New Year:
For February:
• 88.95% - 89.16% probability of win, 15.74% - 17.65% return on investment.
• 87.96% - 88.87% probability of win, 12.87% - 13.90% return on investment.
For January:
• 90.24% - 88.38% probability of win, 8.70% - 13.64% return on investment.
The Markets and How They Affect Us
On Friday’s close, the U.S. stock market gained for a 3rd straight week, sending the S&P 500 to a two-year high, as better-than-estimated data on retail, manufacturing and housing boosted economic confidence.
The S&P 500 rose 0.3% to 1,243.91, finishing a 3-week rally which had been the longest run since Nov. 5th. The Dow also gained 81.59 points, 0.7%, to finish at 11,491.91. With strong corporate earnings, there is a renewed sense of optimism driven by the expectation that profits will continue to be strong.
As the U.S. recovery continues, investors may see growth between 3 - 3.5% next year. The economy grew at an annualized pace of 2.5% during the 3rd quarter - the U.S. economy definitely has some momentum building.
Overseas, there is growing concern that Europe’s debt crisis is worsening as Ireland’s credit rating was reduced due to declining financial strength and the cost associated with bailing out their lenders. Additionally, six Greek banks are currently under review for a possible downgrade a day after the country’s bond rating was put on a watch for a possible reduction.
Finally, Visa and MasterCard, the world’s two largest credit card companies, fell 17% and 13% after the Fed’s proposal on new rules that would offer to cut debit-card transaction fees by 84%; thereby, significantly impacting their business model.
What are the Secrets of the Week?
We have three plays for the week, two on equities and one on an ETF so let’s get started.
You can get in on this week's trades along with two new high-probability trades per week by clicking here now.
Stack the Deck on Every Trade,
Robert
UPS SPIKED HIGHER THURSDAY THEN DROPPED FRIDAY STOPPING US OUT OF OUR JAN 72.50 CALLS AT A SWEET FIFTY-SIX PERCENT PROFIT!
The volatility of this past week did our current positions a world of good..
UPS SPIKED HIGHER THURSDAY THEN DROPPED FRIDAY STOPPING US OUT OF OUR JAN 72.50 CALLS AT A SWEET FIFTY-SIX PERCENT PROFIT!
PLUS MATTEL (MAT) SPIKED HIGHER RIGHT AS WE ENTERED OUR SELL ORDERS FOR A GENEROUS SIXTY-SEVEN PERCENT WINNER!
AND OUR OPEN PLAY ON RESEARCH IN MOTION (RIMM) IS SHOWING A NICE THIRTY-FIVE PERCENT OPEN PROFIT AFTER FRIDAY'S EXPIRATION!
It was a good week and by the looks of things it's going to get better. Our sold December options on RIMM expired worthless Friday exactly as we hoped--and now we own both the January puts and calls for a fraction of their current worth.
Now as the markets wind down toward Christmas are there still opportunities? You bet there are--and we can start by taking a good look at...
WHICH WAY THIS MARKET IS HEADED
The SP-500 traded mostly sideways this past week but with a slight upward bias. The volatility seems to have left this market as the index only varied by about 6 points--extremely unusual for a quadruple witching Friday. The VIX is less than a dollar from its yearly low closing Friday at 16.11.
The Nasdaq spiked to a new intraday high not seen since the end of 2007. This index looks bullish as well but at these lofty levels we could easily see a correction in January.
The markets typically trade higher right through the new year and then swoon going into February--something to keep in mind with new bullish positions as the markets edge higher.
There are reasons the markets are edging higher and we've seen some of them this past week. The Conference Board index of leading economic indicators rose by a very sharp +1.1 points for November. That was the biggest gain since March. Nine of the survey's ten components increased (real estate being the obvious exception).
The internal components point to a 3.0% rate of GDP growth in Q4. The odds of a double dip recession are decreasing every time a new positive economic report is released.
Hiring is improving at least on a temporary basis and it is expected to accelerate in the spring of 2011. Jobless Claims declined only slightly last week but it was enough to push the four-week moving average to 423,000---the lowest level in two years.
The headline number on the Philly Fed Manufacturing Survey for December rose to 24.3 from 22.5 in November. That may not sound like a big gain but the consensus estimates were for a decline to 15.0. Compared to an expected drop it was a great number---the highest level for the index since 2005.
The tax deal signed on Friday is also bullish as it should improve employment fairly quickly because of the accelerated write offs for business. The passing of this bill should remove one more reason for worry from the markets with a tax freeze for the next two years and some additional benefits for employers.
For next week the only material report will be the final GDP revision for Q3 on Wednesday---estimates are for a small rise to +2.6% growth.
The positives for this market are improving economics and a new flood of money still trying to find a home in every asset available (with the obvious exception of real estate). Stocks are not the only assets rising--copper, gold, silver, food and oil prices are all hovering at multi-year highs. The uptrend in almost every asset class within a still tepid economy relates more this new flood of dollars and their declining buying power than increased demand.
Unfortunately all the money printing and new debt is going to put a lid on the stock market at some point. As interest rates rise money will flow from stocks to bonds. And interest rates have been rising--and in spite of the Fed trying to keep rates low they will continue to rise.
Two-year Treasury yields have doubled in 29 trading days. Five-year yields have surged 102 basis points, or 1.02 percentage points, while 10-year yields just hit a seven-month high. What's more, thirty-year municipal bond yields soared to a 16-month high, and thirty-year mortgage rates jumped to the highest since the tail end of the spring home buying season.
Plus inflation is rising in spite of what the official government reports say. Since the first of this month the price of corn is up more than 3 percent, coffee is up more than 8 percent, sugar is up 8.49 percent, oats are up nearly 6 percent, while cotton prices are up more than 16 percent--in less than a month. It's hard to imagine what they'll be in a year.
The problem is these trends are not going to reverse--the fundamental facts tell us they are going to accelerate. So we've got a stock market trending higher with debt, inflation and interest rates massing to kill the rally--the question is...
HOW DO WE MAKE MONEY ON IT?
The key in an uncertain market like this one is to set yourself up to profit no matter which way stocks go. With volatility hovering toward its lows for the year we can get in on 'both ways' trades for less than ever giving us a very low profit threshold.
Our first play is a 'both ways' position on a big box retailer that just formed a horizontal wedge patter famous for predicting a big move--one way or the other. We'll be setting ourselves up to profit on that move first thing Monday!
Our next play is also a 'both ways' trade on a company with great growth and earnings in the past--and an earnings event coming up in the near future. Whether or not traders like their earning is immaterial because we'll be set up to profit in both directions on some very cheap options!
We've got two great play set-ups on a market ready to rock--so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
UPS SPIKED HIGHER THURSDAY THEN DROPPED FRIDAY STOPPING US OUT OF OUR JAN 72.50 CALLS AT A SWEET FIFTY-SIX PERCENT PROFIT!
PLUS MATTEL (MAT) SPIKED HIGHER RIGHT AS WE ENTERED OUR SELL ORDERS FOR A GENEROUS SIXTY-SEVEN PERCENT WINNER!
AND OUR OPEN PLAY ON RESEARCH IN MOTION (RIMM) IS SHOWING A NICE THIRTY-FIVE PERCENT OPEN PROFIT AFTER FRIDAY'S EXPIRATION!
It was a good week and by the looks of things it's going to get better. Our sold December options on RIMM expired worthless Friday exactly as we hoped--and now we own both the January puts and calls for a fraction of their current worth.
Now as the markets wind down toward Christmas are there still opportunities? You bet there are--and we can start by taking a good look at...
WHICH WAY THIS MARKET IS HEADED
The SP-500 traded mostly sideways this past week but with a slight upward bias. The volatility seems to have left this market as the index only varied by about 6 points--extremely unusual for a quadruple witching Friday. The VIX is less than a dollar from its yearly low closing Friday at 16.11.
The Nasdaq spiked to a new intraday high not seen since the end of 2007. This index looks bullish as well but at these lofty levels we could easily see a correction in January.
The markets typically trade higher right through the new year and then swoon going into February--something to keep in mind with new bullish positions as the markets edge higher.
There are reasons the markets are edging higher and we've seen some of them this past week. The Conference Board index of leading economic indicators rose by a very sharp +1.1 points for November. That was the biggest gain since March. Nine of the survey's ten components increased (real estate being the obvious exception).
The internal components point to a 3.0% rate of GDP growth in Q4. The odds of a double dip recession are decreasing every time a new positive economic report is released.
Hiring is improving at least on a temporary basis and it is expected to accelerate in the spring of 2011. Jobless Claims declined only slightly last week but it was enough to push the four-week moving average to 423,000---the lowest level in two years.
The headline number on the Philly Fed Manufacturing Survey for December rose to 24.3 from 22.5 in November. That may not sound like a big gain but the consensus estimates were for a decline to 15.0. Compared to an expected drop it was a great number---the highest level for the index since 2005.
The tax deal signed on Friday is also bullish as it should improve employment fairly quickly because of the accelerated write offs for business. The passing of this bill should remove one more reason for worry from the markets with a tax freeze for the next two years and some additional benefits for employers.
For next week the only material report will be the final GDP revision for Q3 on Wednesday---estimates are for a small rise to +2.6% growth.
The positives for this market are improving economics and a new flood of money still trying to find a home in every asset available (with the obvious exception of real estate). Stocks are not the only assets rising--copper, gold, silver, food and oil prices are all hovering at multi-year highs. The uptrend in almost every asset class within a still tepid economy relates more this new flood of dollars and their declining buying power than increased demand.
Unfortunately all the money printing and new debt is going to put a lid on the stock market at some point. As interest rates rise money will flow from stocks to bonds. And interest rates have been rising--and in spite of the Fed trying to keep rates low they will continue to rise.
Two-year Treasury yields have doubled in 29 trading days. Five-year yields have surged 102 basis points, or 1.02 percentage points, while 10-year yields just hit a seven-month high. What's more, thirty-year municipal bond yields soared to a 16-month high, and thirty-year mortgage rates jumped to the highest since the tail end of the spring home buying season.
Plus inflation is rising in spite of what the official government reports say. Since the first of this month the price of corn is up more than 3 percent, coffee is up more than 8 percent, sugar is up 8.49 percent, oats are up nearly 6 percent, while cotton prices are up more than 16 percent--in less than a month. It's hard to imagine what they'll be in a year.
The problem is these trends are not going to reverse--the fundamental facts tell us they are going to accelerate. So we've got a stock market trending higher with debt, inflation and interest rates massing to kill the rally--the question is...
HOW DO WE MAKE MONEY ON IT?
The key in an uncertain market like this one is to set yourself up to profit no matter which way stocks go. With volatility hovering toward its lows for the year we can get in on 'both ways' trades for less than ever giving us a very low profit threshold.
Our first play is a 'both ways' position on a big box retailer that just formed a horizontal wedge patter famous for predicting a big move--one way or the other. We'll be setting ourselves up to profit on that move first thing Monday!
Our next play is also a 'both ways' trade on a company with great growth and earnings in the past--and an earnings event coming up in the near future. Whether or not traders like their earning is immaterial because we'll be set up to profit in both directions on some very cheap options!
We've got two great play set-ups on a market ready to rock--so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
Thursday, December 16, 2010
Inflation is Already Rocketing--How to Protect Yourself
November's Producer Price Index (PPI) for finished goods surged 0.8%, almost double most economists' estimates. On an annualized basis, that's nearly 10% per year which is WAY too high---but this monster is just beginning to roar.
For the last two weeks in November--the most recent data we have---the price of corn is up more than 3% ... coffee is up more than 8% ... sugar is up 8.49% ... oats are up nearly 6% ... cotton prices are up more than 16%....the price of fruit is up an alarming 14%....and egg prices jumped an outrageous 23%---all in just two weeks!
And the majority of the 'funny money' the Fed has printed hasn't even made its way into the economy yet.
Can you imagine what will happen to the products you consume every day when it does?
Inflation isn't some far off threat that we can deal with when and if it arrives--it's here now.
Click here to find out why you need to act--and what you can do about it.
Keep up the good work,
Peter
For the last two weeks in November--the most recent data we have---the price of corn is up more than 3% ... coffee is up more than 8% ... sugar is up 8.49% ... oats are up nearly 6% ... cotton prices are up more than 16%....the price of fruit is up an alarming 14%....and egg prices jumped an outrageous 23%---all in just two weeks!
And the majority of the 'funny money' the Fed has printed hasn't even made its way into the economy yet.
Can you imagine what will happen to the products you consume every day when it does?
Inflation isn't some far off threat that we can deal with when and if it arrives--it's here now.
Click here to find out why you need to act--and what you can do about it.
Keep up the good work,
Peter
Wednesday, December 15, 2010
How to Avoid the 2011 Debt Crash--Live Webinar This Thursday Night
Just two short years ago panicked governments attempting to prevent a global collapse embarked on the most expensive program of financial bailouts, economic stimulus, and money printing in the history of mankind.
They managed to shore up their economies for awhile--but none of these great rescues came without a terrible cost. Sovereign governments of the United States and Europe have gutted their own finances, instantly creating the largest peacetime deficits of all time.
And now even as the stock market hits new two years highs the first signs of a devastating crash are appearing.
The tell tale sign is rising interest rates in spite of the largest debt buying spree the Fed has ever embarked on.
The good news? It's not too late to protect yourself---but it is critically important you act immediately--which is why we put together this emergency webinar.
Click Here for the Details
Keep up the good work,
Peter
They managed to shore up their economies for awhile--but none of these great rescues came without a terrible cost. Sovereign governments of the United States and Europe have gutted their own finances, instantly creating the largest peacetime deficits of all time.
And now even as the stock market hits new two years highs the first signs of a devastating crash are appearing.
The tell tale sign is rising interest rates in spite of the largest debt buying spree the Fed has ever embarked on.
The good news? It's not too late to protect yourself---but it is critically important you act immediately--which is why we put together this emergency webinar.
Click Here for the Details
Keep up the good work,
Peter
Tuesday, December 14, 2010
Play the rally while you can but be prepared for a debt driven/rising interest rate crash...
This morning, retail sales came in much better than expected. Sales rose .8% and the National Federation of Retailers raised their forecast. This positive news more than offset negative earnings from Best Buy. A loss in market share (not overall electronics demand) is to blame for the poor performance. Business inventories were "market friendly" and sales rose 1.3%. The PPI came in "hot" at .8%. Normally, this might have sparked concern, but the Fed wants prices to rise. They believe disinflation/deflation is a greater foe but once prices really start rising that Pandora may be tough to put back.
Spain and Portugal will hold bond auctions this week. Expect the ECB to actively participate and that should stabilize PIIGS interest rates. The ECB disclosed yesterday that it purchased €2.7 billion worth of bonds last week and that was up from €2 billion the week before. They are increasing their participation to prop up prices. European credit concerns will be an issue early in 2011, but they won't interfere with this year-end rally.
The problems in Europe are festering. The Italian Prime Minister (Berlusconi) narrowly escaped a no-confidence vote. Their debt is enormous and interest rates are moving higher. The country will be faced with tough decisions and this vote (314/311) shows that it will be tough for him to cut deficit spending. Belgium's bond rating was lowered by Standard & Poor's--now they are officially on the sovereign debt radar. The ECB is aware of the warning signs around them and it wants to increase the bailout slush fund. It will ask EU members for more money in the near future.
The opposing market forces will lead to a nice orderly rally into year end. Excellent earnings, strong balance sheets, low interest rates, improving economic conditions, growth in China and QE2 are providing the strength. Rising interest rates and credit concerns in Europe will keep the rally in check. If rates throughout Europe suddenly spike in many countries at the same time, a massive stock market correction will immediately follow. It appears that the ECB will try to bailout every country until member countries stop contributing to the bailout fund. We probably will not see a sovereign bankruptcy--instead they will march closer to the edge of the cliff together.
Play the rally while you can but be prepared for a debt driven/rising interest rate crash--when it happens it will happen fast. Come to this Thursday's debt crisis webinar for your best defensive and profit producing strategies: https://www2.gotomeeting.com/register/734666107
Spain and Portugal will hold bond auctions this week. Expect the ECB to actively participate and that should stabilize PIIGS interest rates. The ECB disclosed yesterday that it purchased €2.7 billion worth of bonds last week and that was up from €2 billion the week before. They are increasing their participation to prop up prices. European credit concerns will be an issue early in 2011, but they won't interfere with this year-end rally.
The problems in Europe are festering. The Italian Prime Minister (Berlusconi) narrowly escaped a no-confidence vote. Their debt is enormous and interest rates are moving higher. The country will be faced with tough decisions and this vote (314/311) shows that it will be tough for him to cut deficit spending. Belgium's bond rating was lowered by Standard & Poor's--now they are officially on the sovereign debt radar. The ECB is aware of the warning signs around them and it wants to increase the bailout slush fund. It will ask EU members for more money in the near future.
The opposing market forces will lead to a nice orderly rally into year end. Excellent earnings, strong balance sheets, low interest rates, improving economic conditions, growth in China and QE2 are providing the strength. Rising interest rates and credit concerns in Europe will keep the rally in check. If rates throughout Europe suddenly spike in many countries at the same time, a massive stock market correction will immediately follow. It appears that the ECB will try to bailout every country until member countries stop contributing to the bailout fund. We probably will not see a sovereign bankruptcy--instead they will march closer to the edge of the cliff together.
Play the rally while you can but be prepared for a debt driven/rising interest rate crash--when it happens it will happen fast. Come to this Thursday's debt crisis webinar for your best defensive and profit producing strategies: https://www2.gotomeeting.com/register/734666107
Monday, December 13, 2010
This Week We're Knocking Down a 13% Return with an 89% Probability of Success!
Welcome to expiration week and our last newsletter for the December/January credit spreads. We’ll select three new plays this week before moving on from January to February. Again, as with every expiration week (not including weeklys), let’s consider closing out any plays that have already earned most of our credit.
As mentioned in earlier editions, whenever a credit spread has less than $0.05 remaining, that’s a great time to close out the trade and “Take the Money and Run!”
From about Wednesday on, the market makers often start widening spreads plus gamma risk increases so either Tuesday’s close or Wednesday’s open would be a great time to exit our plays.
Finally, there’s always the “option” to just let them ride into expiration. The advantage here is that you don’t have to pay any more commission to close your plays. They’ll just expire worthless, and you'll keep all the credit--a nice position to be in.
The Markets and How They Affect Us
Since lower volatility is our friend let's take a quick look at what is affecting market volatility and how it might affect our positions. International market volatility for new debt securities continued in the 3rd quarter after the initial shock of the European sovereign crisis sidelined investors in the 2nd quarter as reported from the Bank for International Settlements yesterday.
Back in May, when the crisis in Greece first flared up, volatility increased to a point where, for about 6 weeks, there weren’t any significant issuances of debt securities.
However, investors eventually breathed a sigh of relief by the government’s announcement of a Greek bailout fund and the European banks’ stress-tests. And with that, the primary markets were reopened but not to every bank. The larger banks of Ireland struggled to raise funding in the international debt securities market last quarter.
As it turns out, the Irish banking sector became the root cause of the country’s problems and Ireland became the second European nation to ask for international help due to the crisis.
As debt concerns continued to keep interest rates low across the globe, corporations took advantage of these low yields to issue some $140 billion during this time which was the highest amount since the 2nd quarter - 2009, when companies sought to sell
Closer to home, oil options volatility weakened on Friday after China acted to counter inflation which could possibly slow their economic growth and demand for the largest energy-consuming country in the world.
Implied volatility for ATM options with March expiration was down along with futures and crude oil deliveries for January after China required lenders to increase their financial reserves.
What are the Secrets of the Week?
We have three new trades this week, two on equities and one on an ETF, so let’s get started.
You can get in on this week's trades along with two new high-probability trades per week by clicking here now: www.cashflowheaven.com/ws
Stack the Deck on Every Trade,
Robert
To all our subscribers, God Bless and have an awesome trading week!
As mentioned in earlier editions, whenever a credit spread has less than $0.05 remaining, that’s a great time to close out the trade and “Take the Money and Run!”
From about Wednesday on, the market makers often start widening spreads plus gamma risk increases so either Tuesday’s close or Wednesday’s open would be a great time to exit our plays.
Finally, there’s always the “option” to just let them ride into expiration. The advantage here is that you don’t have to pay any more commission to close your plays. They’ll just expire worthless, and you'll keep all the credit--a nice position to be in.
The Markets and How They Affect Us
Since lower volatility is our friend let's take a quick look at what is affecting market volatility and how it might affect our positions. International market volatility for new debt securities continued in the 3rd quarter after the initial shock of the European sovereign crisis sidelined investors in the 2nd quarter as reported from the Bank for International Settlements yesterday.
Back in May, when the crisis in Greece first flared up, volatility increased to a point where, for about 6 weeks, there weren’t any significant issuances of debt securities.
However, investors eventually breathed a sigh of relief by the government’s announcement of a Greek bailout fund and the European banks’ stress-tests. And with that, the primary markets were reopened but not to every bank. The larger banks of Ireland struggled to raise funding in the international debt securities market last quarter.
As it turns out, the Irish banking sector became the root cause of the country’s problems and Ireland became the second European nation to ask for international help due to the crisis.
As debt concerns continued to keep interest rates low across the globe, corporations took advantage of these low yields to issue some $140 billion during this time which was the highest amount since the 2nd quarter - 2009, when companies sought to sell
Closer to home, oil options volatility weakened on Friday after China acted to counter inflation which could possibly slow their economic growth and demand for the largest energy-consuming country in the world.
Implied volatility for ATM options with March expiration was down along with futures and crude oil deliveries for January after China required lenders to increase their financial reserves.
What are the Secrets of the Week?
We have three new trades this week, two on equities and one on an ETF, so let’s get started.
You can get in on this week's trades along with two new high-probability trades per week by clicking here now: www.cashflowheaven.com/ws
Stack the Deck on Every Trade,
Robert
To all our subscribers, God Bless and have an awesome trading week!
DRIVING OUR NEW UPS CALLS TO A FAST FIVE DAY THIRTY-SEVEN PERCENT OPEN PROFIT!
This past week the markets continued their relentless climb higher...
DRIVING OUR NEW UPS CALLS TO A FAST FIVE DAY THIRTY-SEVEN PERCENT OPEN PROFIT!
In addition our Mattel (MAT) calls are trading in profit territory and our CRUS calls are hovering on either side of break-even. This has been a good market for straight calls played to the upside--but will it continue? To help find out let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
This market is on fire---the S&P closed at the high of the week and the high of the past two years.
The Nasdaq finally broke through overhead resistance at 2590 and ran for some nice gains. For four days resistance held but the Nasdaq was still able to stretch its consecutive winning streak gaining 100 points in eight days. Support should now be 2590 but after eight days of gains there will likely be a buying opportunity in our immediate future as some event provides an excuse for profit taking.
This bull run is broad based---Friday was a new two-year high for the Nasdaq, S&P, Russell, Wilshire 5000, NYSE Composite and the Dow Transports.
Along with a flood of new money trying to find a home some economic numbers are fueling the rally as well. The new Jobless Claims reported on Thursday came in at 421,000 bringing the four week moving average down to 427,500---the lowest level since August 2008. The headline number was a drop of -17,000 over the prior week. We could be very close to a headline number under 400,000. The most recent low was 410,000 two weeks ago.
Also helping push the markets higher was a stronger than expected Consumer Sentiment report for December. The headline number jumped to 74.2 from 71.6 in November. This is the highest level we have seen since June's 76.0 reading. The summer decline ahead of the elections appears to have ended and sentiment has surged +6.5 points in just the last two months.
The rebound in December was due to a strong increase in the present conditions component from 82.1 to 85.7. This is the highest level for that component since January 2008. The expectations component rose from 64.8 to 66.8. Consumers appear to be pleased with the outcome of the election and the possibility of tax rates staying relatively low.
Once the tax compromise is passed there could be another large spike. The House Democrats are putting up strong opposition to the President's compromise and have refused to pass it. The House has enough Democratic votes to prevent it from passing if they really want to stand united. We saw a rally as soon as the compromise was reported but then Democrats instantly began vowing to defeat it. The markets want the tax cuts extended and they will probably continue sideways until the fate of the compromise is decided. If the measure fails expect a big decline but if it passes we should see an acceleration of the rally. Consumers and investors are always happy about keeping more of their own money.
On the negative side the budget deficit for November was -$150.4 billion--a 25% increase over November 2009 and the largest November deficit on record. Revenues were up +12% but outlays increased by +18%. The government's fiscal year begins in October and for the first two months the deficit has totaled $290.8 billion. The government is projecting a $1.3 trillion deficit for the entire year or 9% of GDP. Perhaps instead of raising taxes the government might consider cutting spending.
On Thursday the Treasury Dept auctioned off $13 billion in 30-year securities and surprisingly the auction was very strongly bid. Recent long-term auctions have had weak demand. The bid-to-cover ratio at 2.74 was the highest level since August with foreign central banks buying the largest amount--49.5% of the offering. The Fed is buying in the 3-7 year range so it was not a result of the Fed supporting the bidding. After two days of declines this rejuvenated the bond market but Friday the bond market sold off again with yields on the 10-year approaching six-month highs
Pimco, the world's largest bond fund, is raising its forecast for U.S. growth next year as policy makers pump in a "massive amount" of stimulus into the economy, according to CEO Mohamed El-Erian. Pimco raised their estimates for growth to the 3.0-3.5% range from 2.0-2.5%. JP Morgan raised their estimate to 3.5% and Morgan Stanley raised estimates to 4% from 2.9%. This increasing growth rate should continue fueling the markets higher.
Edward Yardeni said in an interview on Friday his 2011 year-end target is between 1400-1500 because of improving global fundamentals and expected earnings on the S&P of $100 in 2011. He also reminded everyone the third year of a presidential election cycle has averaged a 20% gain since 1962. That historical trend along with the post recession rebound could produce a surprising rally in 2011.
China's economy is doing so well right now inflation is becoming a problem. The country's consumer prices rose +5.1% driven by higher costs for food. That was well above the 4.7% consensus by analysts. It was also significantly higher than the 4.4% rate in October. Producer prices rose by 6.1% and a full point over estimates. Industrial output rose +13.3%, also stronger than analyst estimates. Retail sales jumped +18.7% and fixed asset investments rose by 24.9% year to date, also higher than expected. Their trade surplus was $22.9 billion. (That compares to our trade deficit of $38.7 billion) Broad money supply or M2 rose by 19.5% and the fastest gain in six months.
An 18.7% jump in retail sales in November is outrageous--the U.S. by comparison is expecting a +1% increase when sales are reported on Tuesday. The Chinese Government is going to have to apply the brakes or their ballooning economy will inflate to the bursting point. Chinese auto sales spiked +27% in November to 1.7 million vehicles--sales for the year have already reached 16.4 million vehicles with 18 million expected by year-end. Streets are becoming so crowded some cities are rationing license plates. In Shanghai the available plates are sold at auction with prices averaging $6,000 or more. Those numbers are astounding and a graphic illustration of how fast wealth is moving to the far-east.
Even if China raises rates sharply the impact to our markets should be minimal. The expectations from the FOMC meeting on Tuesday are also already priced in after a week of consolidation. In either case it will probably take a highly unexpected action to produce a meaningful dip and any dip is likely to be bought--the question is...
HOW DO WE MAKE MONEY ON IT?
The major indices are moving higher and will likely continue to--but certain stocks will outperform the markets as a whole and we've got two exceptional candidates lined up.
The first is a 'both ways' trade on a mobile device maker that has been trending higher lately but just pulled back to its uptrend line--and with earnings coming out soon this one is likely to explode. Fortunately we've got a unique strategy lined up to profit almost no matter what the stock does!
Our next play is on a commodity investors just can't seem to get enough of--in fact it's so hot it's outperformed gold over the past year and will likely continue to. This one also looks ripe for a new entry point and we'll be climbing on board with some well-placed calls first thing Monday morning!
We got a market climbing higher along with two well-placed trades to ride it--so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
DRIVING OUR NEW UPS CALLS TO A FAST FIVE DAY THIRTY-SEVEN PERCENT OPEN PROFIT!
In addition our Mattel (MAT) calls are trading in profit territory and our CRUS calls are hovering on either side of break-even. This has been a good market for straight calls played to the upside--but will it continue? To help find out let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
This market is on fire---the S&P closed at the high of the week and the high of the past two years.
The Nasdaq finally broke through overhead resistance at 2590 and ran for some nice gains. For four days resistance held but the Nasdaq was still able to stretch its consecutive winning streak gaining 100 points in eight days. Support should now be 2590 but after eight days of gains there will likely be a buying opportunity in our immediate future as some event provides an excuse for profit taking.
This bull run is broad based---Friday was a new two-year high for the Nasdaq, S&P, Russell, Wilshire 5000, NYSE Composite and the Dow Transports.
Along with a flood of new money trying to find a home some economic numbers are fueling the rally as well. The new Jobless Claims reported on Thursday came in at 421,000 bringing the four week moving average down to 427,500---the lowest level since August 2008. The headline number was a drop of -17,000 over the prior week. We could be very close to a headline number under 400,000. The most recent low was 410,000 two weeks ago.
Also helping push the markets higher was a stronger than expected Consumer Sentiment report for December. The headline number jumped to 74.2 from 71.6 in November. This is the highest level we have seen since June's 76.0 reading. The summer decline ahead of the elections appears to have ended and sentiment has surged +6.5 points in just the last two months.
The rebound in December was due to a strong increase in the present conditions component from 82.1 to 85.7. This is the highest level for that component since January 2008. The expectations component rose from 64.8 to 66.8. Consumers appear to be pleased with the outcome of the election and the possibility of tax rates staying relatively low.
Once the tax compromise is passed there could be another large spike. The House Democrats are putting up strong opposition to the President's compromise and have refused to pass it. The House has enough Democratic votes to prevent it from passing if they really want to stand united. We saw a rally as soon as the compromise was reported but then Democrats instantly began vowing to defeat it. The markets want the tax cuts extended and they will probably continue sideways until the fate of the compromise is decided. If the measure fails expect a big decline but if it passes we should see an acceleration of the rally. Consumers and investors are always happy about keeping more of their own money.
On the negative side the budget deficit for November was -$150.4 billion--a 25% increase over November 2009 and the largest November deficit on record. Revenues were up +12% but outlays increased by +18%. The government's fiscal year begins in October and for the first two months the deficit has totaled $290.8 billion. The government is projecting a $1.3 trillion deficit for the entire year or 9% of GDP. Perhaps instead of raising taxes the government might consider cutting spending.
On Thursday the Treasury Dept auctioned off $13 billion in 30-year securities and surprisingly the auction was very strongly bid. Recent long-term auctions have had weak demand. The bid-to-cover ratio at 2.74 was the highest level since August with foreign central banks buying the largest amount--49.5% of the offering. The Fed is buying in the 3-7 year range so it was not a result of the Fed supporting the bidding. After two days of declines this rejuvenated the bond market but Friday the bond market sold off again with yields on the 10-year approaching six-month highs
Pimco, the world's largest bond fund, is raising its forecast for U.S. growth next year as policy makers pump in a "massive amount" of stimulus into the economy, according to CEO Mohamed El-Erian. Pimco raised their estimates for growth to the 3.0-3.5% range from 2.0-2.5%. JP Morgan raised their estimate to 3.5% and Morgan Stanley raised estimates to 4% from 2.9%. This increasing growth rate should continue fueling the markets higher.
Edward Yardeni said in an interview on Friday his 2011 year-end target is between 1400-1500 because of improving global fundamentals and expected earnings on the S&P of $100 in 2011. He also reminded everyone the third year of a presidential election cycle has averaged a 20% gain since 1962. That historical trend along with the post recession rebound could produce a surprising rally in 2011.
China's economy is doing so well right now inflation is becoming a problem. The country's consumer prices rose +5.1% driven by higher costs for food. That was well above the 4.7% consensus by analysts. It was also significantly higher than the 4.4% rate in October. Producer prices rose by 6.1% and a full point over estimates. Industrial output rose +13.3%, also stronger than analyst estimates. Retail sales jumped +18.7% and fixed asset investments rose by 24.9% year to date, also higher than expected. Their trade surplus was $22.9 billion. (That compares to our trade deficit of $38.7 billion) Broad money supply or M2 rose by 19.5% and the fastest gain in six months.
An 18.7% jump in retail sales in November is outrageous--the U.S. by comparison is expecting a +1% increase when sales are reported on Tuesday. The Chinese Government is going to have to apply the brakes or their ballooning economy will inflate to the bursting point. Chinese auto sales spiked +27% in November to 1.7 million vehicles--sales for the year have already reached 16.4 million vehicles with 18 million expected by year-end. Streets are becoming so crowded some cities are rationing license plates. In Shanghai the available plates are sold at auction with prices averaging $6,000 or more. Those numbers are astounding and a graphic illustration of how fast wealth is moving to the far-east.
Even if China raises rates sharply the impact to our markets should be minimal. The expectations from the FOMC meeting on Tuesday are also already priced in after a week of consolidation. In either case it will probably take a highly unexpected action to produce a meaningful dip and any dip is likely to be bought--the question is...
HOW DO WE MAKE MONEY ON IT?
The major indices are moving higher and will likely continue to--but certain stocks will outperform the markets as a whole and we've got two exceptional candidates lined up.
The first is a 'both ways' trade on a mobile device maker that has been trending higher lately but just pulled back to its uptrend line--and with earnings coming out soon this one is likely to explode. Fortunately we've got a unique strategy lined up to profit almost no matter what the stock does!
Our next play is on a commodity investors just can't seem to get enough of--in fact it's so hot it's outperformed gold over the past year and will likely continue to. This one also looks ripe for a new entry point and we'll be climbing on board with some well-placed calls first thing Monday morning!
We got a market climbing higher along with two well-placed trades to ride it--so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
Monday, November 15, 2010
When You Hold Calls on a Stock that has 'Gone Parabolic'--SELL INTO THAT STRENGTH!
The market took a step backwards this week but not before racking up some outstanding profits on our bullish positions...
ATP OIL AND GAS (ATPG) POPPED ABOVE OUR PROFIT TRIGGER MONDAY AND THEN REVERSED KNOCKING US OUT OF THE PLAY AT A SWEET TWENTY-ONE PERCENT GAIN!
THEN ON TUESDAY THE IWM SWOONED STOPPING US OUT OF THE TOP HALF OF OUR STRADDLE FOR A COMBINED PROFIT ON BOTH SIDES OF THE TRADE OF THIRTY-SEVEN PERCENT!
BUT THE MONEY-MAKING GRAND-DADDY WAS THE METEORIC RUN UP AND REVERSAL OF TATA MOTORS (TTM) AFTER EARNINGS FOR AN OUTRAGEOUS THREE-DAY ONE-HUNDRED-FORTY PERCENT PROFIT!
The profits from last week were even sweeter considering we had zero losses making it a VERY constructive week for our accounts.
One point that is important to make about last week's trading concerns our bullish play on Tata Motors (TTM). The stock really caught fire on Wednesday moving higher and higher at an accelerating pace finally climbing almost straight up. Whenever you see this kind of exponential climb higher you can bank on one consistent pattern--that kind of straight up climb is unsustainable.
This extreme consistency is true if you are looking at the chart of the Nasdaq back during the dot-com bubble--or QCOM from July '99 to Feb 2000 (it went from $15 to $1000 per share!) or any other stock, index or commodity. And it's true whether that accelerating run higher takes place over months or in Tata's case one day.
The point is this--when you hold calls on a stock that has 'gone parabolic'--in other words it climbs at an ever steepening pace until it is going straight up--then SELL INTO THAT STRENGTH!
Sell immediately when you see that pattern because it is going to reverse as steep as it went up.
For our 'official' record on TTM we DIDN'T do that because I really stress using contingent orders on the service which work great most of the time--but in real life when you see that pattern grab the goodies and get out!
If you would have done that on TTM Wednesday afternoon you would have bagged somewhere in the neighborhood of a 250% profit--instead of the 140% we show after the stock gapped down Thursday morning. That's a 110% difference--pretty huge.
Now I'm not complaining--we had an awesome week. But the whole idea of aggressively trading options is to max your gains to make up for the inevitable losses this kind of trading engenders. And maxing your gains on TTM would have been as easy as hitting the sell button anytime during the last hour of trading Wednesday afternoon.
Okay--enough said. Our goal this week is to turn around and do it again. So where are the profits hiding now? To find out let's take a good look at...
The market drop last week was the biggest weekly decline in more than three months. Volume over the last four days averaged over eight billion shares per day--about average so not an indication of high-volume panic selling.
The S&P declined only 28 points from its highs over the last week and the pace of selling was slow once past the open. Each day had an afternoon rebound---not closing on the lows is a positive signal. Considering all the bad news released last week the markets held up fairly well.
Serious structural problems will be impacting the economy over the long term (out of control entitlement spending) but there is a good chance the short term will stay positive. Money is flowing into mutual funds and the Fed plans to keep it that way.
Unlike the S&P the Nasdaq broke uptrend support at 2550 and has already returned to the bullish consolidation area from late October. Thank you Cisco, Google and Apple. The Nasdaq declined -60 points to come to rest just above 2500. The support range from 2470-2500 needs to hold and halt this Cisco generated tech flight.
Cisco (CSCO) whacked the markets hard when they significantly lowered guidance for future quarters last week with shares declining an eye-popping -18% on the news to close at $20.15 Friday.
Cisco, which dominates sales of networking equipment and has moved into an array of other markets making themselves a decent bellwether for the tech sector---warned late Wednesday that it expects its revenue to grow 3% to 5% in the current quarter—alarmingly lower than analysts' forecasts of 13%.
Cisco's warning was a major blow to market sentiment--at least in the tech sector. The tech stocks had been leading the markets higher and Cisco turned into a major drag on the networking and PC sub sectors. Cisco said decreased government spending worldwide due to austerity programs and budget cuts would drag on revenues for the next two years. It was a bleak outlook from the normally positive tech giant.
Other factors dragging the markets lower last week were worries over rising inflation in China and more potential credit defaults in Europe--particularly Ireland.
China was the main focus on Friday with inflation at two-year highs and worries over further tightening to slow that rise. China's inflation for October came in at 4.4% and nearly a full point higher than the 3.6% rate in September. Inflation has tripled since January's 1.5% rate. The Shanghai Composite Index plunged more than 5.2% on Friday on fears China would hike rates. These fears dragged down all Asian markets and pushed the U.S. market to a negative open as well.
It's always interesting how news driven sell-offs seem to coincide with over-bought markets that need to correct a bit--when the market wants to go down it will always find an excuse. While China's 4.4% inflation rate might sound out of control it is only because traders don't realize the historical trends of Chinese inflation.
From 1994 through 2010 the average inflation rate in China was 4.25% but zoomed as high as 27.7% in October 1994 and was over 8% as recently as May/June 2008. For China's inflation to be 4.4% today it is right inline with the average and not a major problem. Yes, China might hike rates or take some other action to slow its rate of growth but the action will not be crippling to China's 10% growth rate. Growth will continue and even if it declined to 9% it would still be the hottest economy on the planet. Blaming the U.S. market decline on China was easy because the market was already looking for an excuse to take profits.
In addition to China--debt problems resurfaced in Europe as they will continue to do periodically for the foreseeable future. Apparently Ireland is the new Greece.
Last week the growing debt crisis in Ireland dominated the news--but that eased somewhat on Friday. Irish bond prices rose for the first time in 14 days after Britain, France and Germany issued a joint statement promising to stand behind all of Ireland's debts. Before the pledge Bloomberg surveyed analysts and 51% said they "regard a default as likely." That is triple the number who felt it was likely back in June.
By Friday nearly everyone believed the EU and the IMF would be forced to come to Ireland's rescue. The problem with that is the list of countries supporting Ireland are all in the same boat---only their situations are not unraveling right at this moment. How many countries can the EU bail out before it goes broke? As one analyst put it, "who will rescue the rescuers?"
Hopefully the pledge by the EU countries to guarantee Ireland's debt will put an end to the current round of debt worries. The Euro gained slightly on the news.
The drop in the Euro over the last week suddenly made the U.S. dollar a safe haven play despite the Fed's QE program. The dollar rebounded to a five-week high and suddenly made those "short the dollar, long commodities" traders were getting scorched. The weak hands raced for the exits causing an immediate drop in commodity prices.
Gold plunged -$35 on Friday for the biggest one day drop in months to close at $1365 and well below the $1424 high Tuesday. Copper fell -$12.60 or -3.1%---the most in four months. Crude prices fell -3.4% to $84.87 after hitting a new two-year high on Thursday at $88.60. Sugar fell -12% in London and the most in 22 years. Corn and Soybeans traded limit down. The entire CRB Index fell -3.6% for the biggest drop since April 20th 2009. China is the world's leading consumer of many commodities and the combination of possible Chinese tightening and the spike in the dollar crushed prices.
The dollar will reverse as the Fed increases the pace of its bond purchases and the U.S. goes further into debt--it may not happen this week but it will happen--and commodities will rise again. Expect some enthusiastic dip-buying once the dust settles because the Fed is seriously determined to undermine the dollar.
The Fed launched its first bond purchases under the QE2 program on Friday. The Fed offered to buy $7.2 billion in bonds and dealers offered to sell $29 billion in 3-5 year maturities. After the smoke cleared the scoreboard showed $7 billion sold and $593 billion to go. The Fed is expected to buy $105 billion in total at auction almost every business day for the next month in an effort to push rates lower. That did not work Friday with yields on the 10-year notes jumping +5.17% and the biggest increase since August. Yields on the 2-year jumped +17% for the biggest one day increase since April. However eventually the daily Fed purchases will produce the desired effect.
The market retraced last week as the herd tends to get all bent out of shape when negative news events start piling on top of each other. We may see some follow through early this week but the major up-trends are still in place and the real investors will begin snapping up bargains the moment the selling slows.
The news events from last week that were so effective in driving the market lower will likely fade now that the G20 is not producing dozens of sound bites a day and their accompanying "currency war" headlines. The Ireland news risk should also fade because of the EU pledge to stand behind Ireland's debt.
There are other possible bullish incentives coming as well. This week we've got the Philly Fed Manufacturing Survey on Thursday---notable because of the expected improvement. Consensus estimates are for a jump to 5.0 from 1.0 on the headline number. That would completely reverse the last three months of declines and predict a strong showing for the national ISM. This report could revive U.S. expectations for economic improvement.
Meanwhile Consumer Sentiment for November rose to 69.3 from the prior reading of 67.7. This is the highest level since June and it was led by a rise in the present conditions component to 79.7 from 76.6 while the expectations component rose only one point to 62.7. This is a bullish sign now that we are in the fourth quarter--the biggest consumption quarter by far and where many retail stores make or break their year.
The Fed is going to keep driving money into this market so buying the dips still seems like a smart strategy---at least through the end of the year--the question is...
HOW DO WE MAKE MONEY ON IT?
The key in a market like this one is to find the most bullish stocks and buy them on pull-backs--and that's exactly what we're doing.
Our first play is on an outstanding niche retailer that just increased their bottom line by a whopping 46%--in this economy! The company is firing on all cylinders and has no national competition in their space. One look at the chart will have you drooling to buy this pullback--a strategy we'll be implementing Monday with some well-place calls!
Our next play is on a tech stock that just got hammered Friday along with the rest of the market but we've got good reason to believe this one could rocket back within a matter of days--a ride we're planning on climbing aboard first thing Monday with some high-potential calls!
We've got the pullback traders have been waiting on for weeks--with two outstanding plays ready to take advantage of it--so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
ATP OIL AND GAS (ATPG) POPPED ABOVE OUR PROFIT TRIGGER MONDAY AND THEN REVERSED KNOCKING US OUT OF THE PLAY AT A SWEET TWENTY-ONE PERCENT GAIN!
THEN ON TUESDAY THE IWM SWOONED STOPPING US OUT OF THE TOP HALF OF OUR STRADDLE FOR A COMBINED PROFIT ON BOTH SIDES OF THE TRADE OF THIRTY-SEVEN PERCENT!
BUT THE MONEY-MAKING GRAND-DADDY WAS THE METEORIC RUN UP AND REVERSAL OF TATA MOTORS (TTM) AFTER EARNINGS FOR AN OUTRAGEOUS THREE-DAY ONE-HUNDRED-FORTY PERCENT PROFIT!
The profits from last week were even sweeter considering we had zero losses making it a VERY constructive week for our accounts.
One point that is important to make about last week's trading concerns our bullish play on Tata Motors (TTM). The stock really caught fire on Wednesday moving higher and higher at an accelerating pace finally climbing almost straight up. Whenever you see this kind of exponential climb higher you can bank on one consistent pattern--that kind of straight up climb is unsustainable.
This extreme consistency is true if you are looking at the chart of the Nasdaq back during the dot-com bubble--or QCOM from July '99 to Feb 2000 (it went from $15 to $1000 per share!) or any other stock, index or commodity. And it's true whether that accelerating run higher takes place over months or in Tata's case one day.
The point is this--when you hold calls on a stock that has 'gone parabolic'--in other words it climbs at an ever steepening pace until it is going straight up--then SELL INTO THAT STRENGTH!
Sell immediately when you see that pattern because it is going to reverse as steep as it went up.
For our 'official' record on TTM we DIDN'T do that because I really stress using contingent orders on the service which work great most of the time--but in real life when you see that pattern grab the goodies and get out!
If you would have done that on TTM Wednesday afternoon you would have bagged somewhere in the neighborhood of a 250% profit--instead of the 140% we show after the stock gapped down Thursday morning. That's a 110% difference--pretty huge.
Now I'm not complaining--we had an awesome week. But the whole idea of aggressively trading options is to max your gains to make up for the inevitable losses this kind of trading engenders. And maxing your gains on TTM would have been as easy as hitting the sell button anytime during the last hour of trading Wednesday afternoon.
Okay--enough said. Our goal this week is to turn around and do it again. So where are the profits hiding now? To find out let's take a good look at...
The market drop last week was the biggest weekly decline in more than three months. Volume over the last four days averaged over eight billion shares per day--about average so not an indication of high-volume panic selling.
The S&P declined only 28 points from its highs over the last week and the pace of selling was slow once past the open. Each day had an afternoon rebound---not closing on the lows is a positive signal. Considering all the bad news released last week the markets held up fairly well.
Serious structural problems will be impacting the economy over the long term (out of control entitlement spending) but there is a good chance the short term will stay positive. Money is flowing into mutual funds and the Fed plans to keep it that way.
Unlike the S&P the Nasdaq broke uptrend support at 2550 and has already returned to the bullish consolidation area from late October. Thank you Cisco, Google and Apple. The Nasdaq declined -60 points to come to rest just above 2500. The support range from 2470-2500 needs to hold and halt this Cisco generated tech flight.
Cisco (CSCO) whacked the markets hard when they significantly lowered guidance for future quarters last week with shares declining an eye-popping -18% on the news to close at $20.15 Friday.
Cisco, which dominates sales of networking equipment and has moved into an array of other markets making themselves a decent bellwether for the tech sector---warned late Wednesday that it expects its revenue to grow 3% to 5% in the current quarter—alarmingly lower than analysts' forecasts of 13%.
Cisco's warning was a major blow to market sentiment--at least in the tech sector. The tech stocks had been leading the markets higher and Cisco turned into a major drag on the networking and PC sub sectors. Cisco said decreased government spending worldwide due to austerity programs and budget cuts would drag on revenues for the next two years. It was a bleak outlook from the normally positive tech giant.
Other factors dragging the markets lower last week were worries over rising inflation in China and more potential credit defaults in Europe--particularly Ireland.
China was the main focus on Friday with inflation at two-year highs and worries over further tightening to slow that rise. China's inflation for October came in at 4.4% and nearly a full point higher than the 3.6% rate in September. Inflation has tripled since January's 1.5% rate. The Shanghai Composite Index plunged more than 5.2% on Friday on fears China would hike rates. These fears dragged down all Asian markets and pushed the U.S. market to a negative open as well.
It's always interesting how news driven sell-offs seem to coincide with over-bought markets that need to correct a bit--when the market wants to go down it will always find an excuse. While China's 4.4% inflation rate might sound out of control it is only because traders don't realize the historical trends of Chinese inflation.
From 1994 through 2010 the average inflation rate in China was 4.25% but zoomed as high as 27.7% in October 1994 and was over 8% as recently as May/June 2008. For China's inflation to be 4.4% today it is right inline with the average and not a major problem. Yes, China might hike rates or take some other action to slow its rate of growth but the action will not be crippling to China's 10% growth rate. Growth will continue and even if it declined to 9% it would still be the hottest economy on the planet. Blaming the U.S. market decline on China was easy because the market was already looking for an excuse to take profits.
In addition to China--debt problems resurfaced in Europe as they will continue to do periodically for the foreseeable future. Apparently Ireland is the new Greece.
Last week the growing debt crisis in Ireland dominated the news--but that eased somewhat on Friday. Irish bond prices rose for the first time in 14 days after Britain, France and Germany issued a joint statement promising to stand behind all of Ireland's debts. Before the pledge Bloomberg surveyed analysts and 51% said they "regard a default as likely." That is triple the number who felt it was likely back in June.
By Friday nearly everyone believed the EU and the IMF would be forced to come to Ireland's rescue. The problem with that is the list of countries supporting Ireland are all in the same boat---only their situations are not unraveling right at this moment. How many countries can the EU bail out before it goes broke? As one analyst put it, "who will rescue the rescuers?"
Hopefully the pledge by the EU countries to guarantee Ireland's debt will put an end to the current round of debt worries. The Euro gained slightly on the news.
The drop in the Euro over the last week suddenly made the U.S. dollar a safe haven play despite the Fed's QE program. The dollar rebounded to a five-week high and suddenly made those "short the dollar, long commodities" traders were getting scorched. The weak hands raced for the exits causing an immediate drop in commodity prices.
Gold plunged -$35 on Friday for the biggest one day drop in months to close at $1365 and well below the $1424 high Tuesday. Copper fell -$12.60 or -3.1%---the most in four months. Crude prices fell -3.4% to $84.87 after hitting a new two-year high on Thursday at $88.60. Sugar fell -12% in London and the most in 22 years. Corn and Soybeans traded limit down. The entire CRB Index fell -3.6% for the biggest drop since April 20th 2009. China is the world's leading consumer of many commodities and the combination of possible Chinese tightening and the spike in the dollar crushed prices.
The dollar will reverse as the Fed increases the pace of its bond purchases and the U.S. goes further into debt--it may not happen this week but it will happen--and commodities will rise again. Expect some enthusiastic dip-buying once the dust settles because the Fed is seriously determined to undermine the dollar.
The Fed launched its first bond purchases under the QE2 program on Friday. The Fed offered to buy $7.2 billion in bonds and dealers offered to sell $29 billion in 3-5 year maturities. After the smoke cleared the scoreboard showed $7 billion sold and $593 billion to go. The Fed is expected to buy $105 billion in total at auction almost every business day for the next month in an effort to push rates lower. That did not work Friday with yields on the 10-year notes jumping +5.17% and the biggest increase since August. Yields on the 2-year jumped +17% for the biggest one day increase since April. However eventually the daily Fed purchases will produce the desired effect.
The market retraced last week as the herd tends to get all bent out of shape when negative news events start piling on top of each other. We may see some follow through early this week but the major up-trends are still in place and the real investors will begin snapping up bargains the moment the selling slows.
The news events from last week that were so effective in driving the market lower will likely fade now that the G20 is not producing dozens of sound bites a day and their accompanying "currency war" headlines. The Ireland news risk should also fade because of the EU pledge to stand behind Ireland's debt.
There are other possible bullish incentives coming as well. This week we've got the Philly Fed Manufacturing Survey on Thursday---notable because of the expected improvement. Consensus estimates are for a jump to 5.0 from 1.0 on the headline number. That would completely reverse the last three months of declines and predict a strong showing for the national ISM. This report could revive U.S. expectations for economic improvement.
Meanwhile Consumer Sentiment for November rose to 69.3 from the prior reading of 67.7. This is the highest level since June and it was led by a rise in the present conditions component to 79.7 from 76.6 while the expectations component rose only one point to 62.7. This is a bullish sign now that we are in the fourth quarter--the biggest consumption quarter by far and where many retail stores make or break their year.
The Fed is going to keep driving money into this market so buying the dips still seems like a smart strategy---at least through the end of the year--the question is...
HOW DO WE MAKE MONEY ON IT?
The key in a market like this one is to find the most bullish stocks and buy them on pull-backs--and that's exactly what we're doing.
Our first play is on an outstanding niche retailer that just increased their bottom line by a whopping 46%--in this economy! The company is firing on all cylinders and has no national competition in their space. One look at the chart will have you drooling to buy this pullback--a strategy we'll be implementing Monday with some well-place calls!
Our next play is on a tech stock that just got hammered Friday along with the rest of the market but we've got good reason to believe this one could rocket back within a matter of days--a ride we're planning on climbing aboard first thing Monday with some high-potential calls!
We've got the pullback traders have been waiting on for weeks--with two outstanding plays ready to take advantage of it--so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
Wednesday, November 3, 2010
Monday, November 1, 2010
HARLEY DAVIDSON (HOG) DRIFTED LOWER DRIVING OUR NEW PUT PLAY TO A ONE WEEK THIRTY-FOUR PERCENT OPEN PROFIT!
This past week the markets drifted sideways to down as traders await the November elections and an announcement from the Fed...
HARLEY DAVIDSON (HOG) DRIFTED LOWER DRIVING OUR NEW PUT PLAY TO A ONE WEEK THIRTY-FOUR PERCENT OPEN PROFIT!
Those are some nice gains so far but they'll be a lot bigger once the stock trades below our profit trigger--and that's the direction it's headed. Our other play on ATPG drifted lower finally filling in its gap from earlier this month and now looks poised to shoot higher--after falling all week it rose almost 3% on Friday.
The market is holding its breath waiting for the big election news this week and waiting to see how much more accommodative the Fed wants to be--so in this kind of a 'waiting to break one way or the other' market where might the profits be hiding? To find out let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
After hitting resistance at 1185 a little over a week ago the SP-500 has been trading sideways ever since. Bad economic news, currency spikes and earnings disappointments have triggered temporary declines but nothing has kept the SPX down for more than a day. Evidently the idea of easing interest rates and more money flooding into stocks still has the power to buoy the markets.
The Nasdaq came to a dead stop at just over 2500 but managed to extend its string of positive gains to eight consecutive days. If the Nasdaq breaks above the year's highs at 2520 the short covering rally could be explosive. There is no immediate resistance over 2520 and we could be in for an nice run higher if the index sees a breakout.
A big part of the power behind the Nasdaq has been the semiconductor sector. The SOX gained a whopping 4.4% last week when most of the indexes were flat. That kind of performance is surprising since several chipmakers warned about future sales and the slowdown in PC growth. Offsetting those worries were a few chip companies that are producing chips for phones and things like the new tablets coming to market. Business is good for them and that is what traders are latching onto.
Blended earnings growth for the S&P-500 is now up to 30.1% compared to the estimates for 23.8% growth back on October 1st. Of the 335 (67%) of companies reported 77% beat estimates and 17% missed estimates. This pushed the earnings growth rate for all of 2010 to +32%--pretty decent performance considering the economic headwinds companies are facing.
With 67% of the S&P reported we've got a good handle on the quarter as the few major companies left to announce will not change the outcome significantly. The news is out for Q3 and it will be increasingly difficult for a positive surprise to move the market.
The market has now priced in the election, a new Fed QE2 program and some pretty decent earnings surprises. Conventional wisdom would suggest it is time to take profits but keep in mind there are a whole lot of investors still waiting on the sidelines.
Trimtabs.com reported on Friday that investors put $759 million into U.S. equity funds in the week ended on Tuesday---which is huge news considering that funds have seen outflows of $4 billion per week on average for over six months straight. This is the first time in over six months money has been flowing into equity funds and yet the market is at the highs for the year. Retail investors have been pulling money out of equity funds and putting it into bond funds but if that trend reverses as we saw last week the impact on the stock market would be huge.
The bottom line is even though we've had a tremendous run from August there still may be some gas in the tank after this week's election and monetary news settles.
Consider this piece of historic market data---since 1942 in the 12 months following a midterm election the market has averaged a 24.7% gain. That is a hefty average considering some years did significantly worse. The normal Q3 to Q3 gain is only 8.9% so there is something to be said for buying into the election.
The economics this past week were mixed with the headline GDP number for Q3 coming in at +2.0% compared to growth of +1.7% in Q2. However, if you remove the inventory-rebuilding component the GDP would have been only +0.6%. Investment growth slowed dramatically from +2.1% to only +0.1%. Government spending accounted for +0.7% of the overall GDP. That means government spending is the only thing that kept the non-inventory GDP positive.
The inventory rebuild phase is nearly over but consumers have not stepped up their buying as they have in previous rebounds. That means future quarters will not have the inventory build to keep them positive. Plus this quarter the government will not be nearly as big of a contributor as in Q3. Some economists are predicting a +1.6% final Q3 number of which government spending will be nearly half and ex-inventory would be flat. Until employment picks up the GDP should remain at or below the 2% level--pretty anemic.
The GDP numbers are one more piece of assurance the Fed is not going to raise rates for a long time. Most analysts are now expecting the Fed to be on hold until 2012.
In spite of some great expectations there promises to be plenty of volatility this week as we could easily see a 'sell the news event'---but we should rebound if the Fed provides sufficient stimulus. The combination of cheaper dollars and the end of election uncertainty will eventually push the markets higher--the question is...
HOW DO WE MAKE MONEY ON IT?
We've got two high-potential trades lined up --because of the potential volatility this week they are both 'Both ways trades'. The first is on a stock liable to explode when earnings are released later this week as it is a high profile company that has been trading sideways for quite awhile waiting for the right catalyst to really move.
Our next play is also a 'both ways' trade and the moment you see the chart on this one you'll know why. It has been compressing in a sideways wedge pattern for three weeks foretelling an explosive move--one way or the other. The good news is we'll be ready in BOTH directions with some low-cost but high-potential options.
We've got two great plays lined up on a market waiting to bust a move--so let's get to it...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
HARLEY DAVIDSON (HOG) DRIFTED LOWER DRIVING OUR NEW PUT PLAY TO A ONE WEEK THIRTY-FOUR PERCENT OPEN PROFIT!
Those are some nice gains so far but they'll be a lot bigger once the stock trades below our profit trigger--and that's the direction it's headed. Our other play on ATPG drifted lower finally filling in its gap from earlier this month and now looks poised to shoot higher--after falling all week it rose almost 3% on Friday.
The market is holding its breath waiting for the big election news this week and waiting to see how much more accommodative the Fed wants to be--so in this kind of a 'waiting to break one way or the other' market where might the profits be hiding? To find out let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
After hitting resistance at 1185 a little over a week ago the SP-500 has been trading sideways ever since. Bad economic news, currency spikes and earnings disappointments have triggered temporary declines but nothing has kept the SPX down for more than a day. Evidently the idea of easing interest rates and more money flooding into stocks still has the power to buoy the markets.
The Nasdaq came to a dead stop at just over 2500 but managed to extend its string of positive gains to eight consecutive days. If the Nasdaq breaks above the year's highs at 2520 the short covering rally could be explosive. There is no immediate resistance over 2520 and we could be in for an nice run higher if the index sees a breakout.
A big part of the power behind the Nasdaq has been the semiconductor sector. The SOX gained a whopping 4.4% last week when most of the indexes were flat. That kind of performance is surprising since several chipmakers warned about future sales and the slowdown in PC growth. Offsetting those worries were a few chip companies that are producing chips for phones and things like the new tablets coming to market. Business is good for them and that is what traders are latching onto.
Blended earnings growth for the S&P-500 is now up to 30.1% compared to the estimates for 23.8% growth back on October 1st. Of the 335 (67%) of companies reported 77% beat estimates and 17% missed estimates. This pushed the earnings growth rate for all of 2010 to +32%--pretty decent performance considering the economic headwinds companies are facing.
With 67% of the S&P reported we've got a good handle on the quarter as the few major companies left to announce will not change the outcome significantly. The news is out for Q3 and it will be increasingly difficult for a positive surprise to move the market.
The market has now priced in the election, a new Fed QE2 program and some pretty decent earnings surprises. Conventional wisdom would suggest it is time to take profits but keep in mind there are a whole lot of investors still waiting on the sidelines.
Trimtabs.com reported on Friday that investors put $759 million into U.S. equity funds in the week ended on Tuesday---which is huge news considering that funds have seen outflows of $4 billion per week on average for over six months straight. This is the first time in over six months money has been flowing into equity funds and yet the market is at the highs for the year. Retail investors have been pulling money out of equity funds and putting it into bond funds but if that trend reverses as we saw last week the impact on the stock market would be huge.
The bottom line is even though we've had a tremendous run from August there still may be some gas in the tank after this week's election and monetary news settles.
Consider this piece of historic market data---since 1942 in the 12 months following a midterm election the market has averaged a 24.7% gain. That is a hefty average considering some years did significantly worse. The normal Q3 to Q3 gain is only 8.9% so there is something to be said for buying into the election.
The economics this past week were mixed with the headline GDP number for Q3 coming in at +2.0% compared to growth of +1.7% in Q2. However, if you remove the inventory-rebuilding component the GDP would have been only +0.6%. Investment growth slowed dramatically from +2.1% to only +0.1%. Government spending accounted for +0.7% of the overall GDP. That means government spending is the only thing that kept the non-inventory GDP positive.
The inventory rebuild phase is nearly over but consumers have not stepped up their buying as they have in previous rebounds. That means future quarters will not have the inventory build to keep them positive. Plus this quarter the government will not be nearly as big of a contributor as in Q3. Some economists are predicting a +1.6% final Q3 number of which government spending will be nearly half and ex-inventory would be flat. Until employment picks up the GDP should remain at or below the 2% level--pretty anemic.
The GDP numbers are one more piece of assurance the Fed is not going to raise rates for a long time. Most analysts are now expecting the Fed to be on hold until 2012.
In spite of some great expectations there promises to be plenty of volatility this week as we could easily see a 'sell the news event'---but we should rebound if the Fed provides sufficient stimulus. The combination of cheaper dollars and the end of election uncertainty will eventually push the markets higher--the question is...
HOW DO WE MAKE MONEY ON IT?
We've got two high-potential trades lined up --because of the potential volatility this week they are both 'Both ways trades'. The first is on a stock liable to explode when earnings are released later this week as it is a high profile company that has been trading sideways for quite awhile waiting for the right catalyst to really move.
Our next play is also a 'both ways' trade and the moment you see the chart on this one you'll know why. It has been compressing in a sideways wedge pattern for three weeks foretelling an explosive move--one way or the other. The good news is we'll be ready in BOTH directions with some low-cost but high-potential options.
We've got two great plays lined up on a market waiting to bust a move--so let's get to it...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
Monday, October 25, 2010
This Week We're Aiming to Knock Down a 77% Annualized Return with an Over 91% Probability of Success!
For our November/December expiration period, we now have 10 positions in play. Of the 10 positions, 7 out of 10 are now profitable, one is very close to profitability, one was not filled and one may require an adjustment--which we'll discuss later in the newsletter.
Progress Report--At this point we've got a 9% profit going for the month with a +90% probability of success.
That performance is excellent and we're on track for another good month--but perhaps the best thing about this style of trading is once the trade is established the market or the stocks we are trading on don't have to 'perform'--all that is necessary is the passage of time.
The odds are overwhelmingly in our favor--but there are always wild cards that can make things interesting. So with that in mind let's take a good look at...
The Market
The banking sector exploded higher this morning, along with the broader equity market, as Goldman Sachs added Citigroup Inc (C) to its "conviction list" and existing home sales climbed to a second consecutive month of gains--the National Association of Realtors reported existing home sales rose 10% to an annual rate of 4.53 million, up from a downwardly revised 4.12 million in August.
The bottom line is the uptrend is still intact.
This week, investors will see a number of earnings reports---177 S&P 500 companies are expected to report their quarterly performance, seven of which are listed on the Dow. Earnings are expected to be good; however, as we've seen in the last week any disappointment in either earnings or market outlook instantly triggers a sharp sell-off in that particular stock. With as much of a run as we've had it doesn't take much for investors to quickly lock in profits.
Even though there may individual stocks selling off the market will likely continue to rally--we’re coming to the beginning of the most bullish six months of the year. But the big driver is investors are counting on the Federal Reserve announcing additional measures to stimulate the economy. Known as "Quantitative Easing", the Fed is expected to unveil the new plan during their November 2-3 meeting.
The market appears to be in a holding pattern as investors turn their focus to another busy week of earnings reports, the U.S. mid-term elections and the Fed’s November 2-3 meeting.
Trader’s Tip:
Historically,
• October marks the end of the most bearish 6 month period for the Dow and S&P 500--as November heralds in the most bullish 6 months of the year. October also marks the end of the most bearish 4 months for the NASDAQ.
• October is known as the “bear killer”.
• October 28th is the 81st anniversary of the 1929 Crash where the Dow sank 23% in just two days.
• Thursday, October 28th and Friday, October 29th are historically bullish trading days.
Key Dates:
• November 18th--options expiration for some indices.
• November 19th--options expiration for all equity and all other index options.
What are the Secrets of the Week?
This week’s plays are both high-odds ETFs that give us plenty of room to be right---Our first play offers a +90% probability of success with an exceptional potential return of almost 12%. Our second play provides a +91% probability of win with a potential return on investment of 9%.
With such extreme complacency as shown in the volatility indices, it’s best to remain as neutral as possible until we get through 3rd quarter earnings, the U.S. mid-term elections and a conclusion as to what the Fed is really going to do. So let's get to it...
You can get in on this week's trades along with two new high-probability trades per week by clicking here now.
Stack the Deck on Every Trade,
Robert
Progress Report--At this point we've got a 9% profit going for the month with a +90% probability of success.
That performance is excellent and we're on track for another good month--but perhaps the best thing about this style of trading is once the trade is established the market or the stocks we are trading on don't have to 'perform'--all that is necessary is the passage of time.
The odds are overwhelmingly in our favor--but there are always wild cards that can make things interesting. So with that in mind let's take a good look at...
The Market
The banking sector exploded higher this morning, along with the broader equity market, as Goldman Sachs added Citigroup Inc (C) to its "conviction list" and existing home sales climbed to a second consecutive month of gains--the National Association of Realtors reported existing home sales rose 10% to an annual rate of 4.53 million, up from a downwardly revised 4.12 million in August.
The bottom line is the uptrend is still intact.
This week, investors will see a number of earnings reports---177 S&P 500 companies are expected to report their quarterly performance, seven of which are listed on the Dow. Earnings are expected to be good; however, as we've seen in the last week any disappointment in either earnings or market outlook instantly triggers a sharp sell-off in that particular stock. With as much of a run as we've had it doesn't take much for investors to quickly lock in profits.
Even though there may individual stocks selling off the market will likely continue to rally--we’re coming to the beginning of the most bullish six months of the year. But the big driver is investors are counting on the Federal Reserve announcing additional measures to stimulate the economy. Known as "Quantitative Easing", the Fed is expected to unveil the new plan during their November 2-3 meeting.
The market appears to be in a holding pattern as investors turn their focus to another busy week of earnings reports, the U.S. mid-term elections and the Fed’s November 2-3 meeting.
Trader’s Tip:
Historically,
• October marks the end of the most bearish 6 month period for the Dow and S&P 500--as November heralds in the most bullish 6 months of the year. October also marks the end of the most bearish 4 months for the NASDAQ.
• October is known as the “bear killer”.
• October 28th is the 81st anniversary of the 1929 Crash where the Dow sank 23% in just two days.
• Thursday, October 28th and Friday, October 29th are historically bullish trading days.
Key Dates:
• November 18th--options expiration for some indices.
• November 19th--options expiration for all equity and all other index options.
What are the Secrets of the Week?
This week’s plays are both high-odds ETFs that give us plenty of room to be right---Our first play offers a +90% probability of success with an exceptional potential return of almost 12%. Our second play provides a +91% probability of win with a potential return on investment of 9%.
With such extreme complacency as shown in the volatility indices, it’s best to remain as neutral as possible until we get through 3rd quarter earnings, the U.S. mid-term elections and a conclusion as to what the Fed is really going to do. So let's get to it...
You can get in on this week's trades along with two new high-probability trades per week by clicking here now.
Stack the Deck on Every Trade,
Robert
NETFLIX (NLFX) JUMPED BY OVER TWENTY-DOLLARS AFTER ANNOUNCING BLOW-OUT EARNINGS WEDNESDAY NIGHT!
This past week the tug-o-war between earnings and economic news rocked the markets in both directions-- but our two new bullish plays spiked higher immediately after announcing...
NETFLIX (NLFX) JUMPED BY OVER TWENTY-DOLLARS AFTER ANNOUNCING BLOW-OUT EARNINGS WEDNESDAY NIGHT!
AND FREEPORT MCMORAN (FXC) SPIKED HIGHER BY OVER FOUR DOLLARS AFTER ANNOUNCING A TWENTY-SEVEN PERCENT PROFIT SURGE THURSDAY MORNING!
Those are some great earnings and stock performance---and we should be opening bottles of champagne and high-fiving each other--but both of these bullish plays were stopped out in the volatility immediately preceding their announcements! Now that hurts.
It's great to have been right on our analysis and direction of these two plays but the extreme choppiness of the markets early last week bounced us out before we could benefit from them. I know getting stopped out before the play takes off in our direction is super disappointing---but it's important to trade according to your discipline---especially with earnings plays. This one didn't turn out the way we wanted but we did play it the right way by setting solid safeguards to limit our losses--that's important and sticking to your discipline is something to be proud of.
The good news is earnings aren't over by a long shot and there are other stocks announcing with good prospects of moving the markets--and we're going to take advantage of that movement. To get an idea where the profits are this week let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
The SP-500 rocked back and forth last week finishing up just seven points at 1183.08. That is not exactly a huge performance but it was another week of gains keeping the uptrend intact.
After spiking lower Tuesday morning the Nasdaq gained back all of its losses plus some to close at 2479--up 10.62 on the week. This index is still looking bullish and is continuing to move toward the yearly high at 2535.28---any move above that level would cause another round of short-covering.
However there is a lot of profit on the table---Amazon has rallied $65 since July---a 50% move--NetFlix is up 70% and AAPL is up 28% since August---and there are many others. With year-end for mutual funds coming up this Friday October 29 there are some good reasons to lock in gains.
However the big driver in this market is still intact--a Federal Reserve bent on flooding the market with more dollars. As long as those dollars are still flowing into stocks we could see some new highs before the end of the year--but not without some volatility along the way.
There were two economic reports for Friday and they both concerned employment-- Regional Employment and Mass Layoffs. The regional payroll report showed that 34 states lost jobs in September. with 23 states reporting a lower unemployment rate. However that lower unemployment rate can be deceiving because anyone running out of employment benefits fell off the rolls.
The Mass Layoff report showed the number of layoff events declined for the third consecutive month. They fell from 1,546 in August to 1,486 in September. The number of workers affected fell from 150,192 in August to 133,379 in September. Manufacturing still accounted for more than 25% of the layoffs. The slowing of layoffs suggests the economy is growing but still at a very slow pace.
Next week's economic calendar is active with multiple housing reports, Fed surveys and the GDP on Friday. The GDP will be the most important report for the week and our first look at the Q3 rate of growth. Estimates have risen slightly over the last month but the whisper numbers are still in the 1.6% range--pretty anemic but still positive.
Economic news is important but the real market mover is still earnings. So far over one third of the S&P has announced--out of the 158 S&P companies reporting 79.1% beat estimates, 7% reported inline and 13.9% missed. Those that beat estimates posted average gains in earnings of 47.4% while companies that missed averaged a -33.1% miss.
So far the SP-500 is showing reported earnings for the quarter increasing 26.21% over 2009Q3. That's some good performance but companies that are reporting inline are often getting sold hard after announcing--especially without a lot of positive forward guidance. Evidently expectations are pretty high and traders are selling quickly unless a company really outperforms-- a sign of weakening bullish sentiment.
This week we've got Microsoft reporting on Thursday after the close---the biggest tech stock to report this week. Also important are 3M, Texas Instruments, Merck and a ton of chip stocks.
Another big driver of this market is--and will continue to be--the value of the dollar. As the dollar declines stocks have been rising with commodity stocks is particular gaining ground as it takes more dollars to buy their output.
The value of the dollar hit center stage at the G-20 conference this weekend. Leading up to the conference on Thursday Timothy Geithner said that all the major currencies were roughly equal and then he circulated a letter to the other finance ministers on Friday telling them to hike the value of their currencies in order to increase the value of their exports on the U.S. market. As you can imagine that letter created a roar of protest.
The letter was seen as a direct attack on China and warned of the dangers of seeking "competitive advantage by either weakening their currency or preventing appreciation of undervalued currency." Those comments were seen as pretty hypocritical considering the U.S. is on a major quantitative easing program creating massive quantities of artificial money in order to lower interest rates and devalue the currency making U.S. exports cheaper. As you can imagine Geithner warning other countries about doing the same thing did not go over well at the meeting.
The Japanese Finance Minister called Geithner "unrealistic" and "difficult." He also warned "strong volatility in currency markets would be harmful to the stability of the global economy and financial system." The BRIC countries were united in their condemnation of the Geithner letter and said bluntly that the U.S. would not succeed in pressuring other countries to do what the U.S. was not doing itself.
Nothing was expected to result from the G20 meeting but the recent moves in currencies prompted traders to exercise caution and go flat over the weekend. When the meeting closed on Saturday there was "agreement" not to have a currency war--but ironically that is exactly what we've got.
One of the closing statements of the meeting by South Korean Finance Minister Yoon Jeung-Hyun showed exactly how much of the world sees the US today. He said the two-day G20 meeting had laid to rest fears of a currency war between "struggling debtors such as the United States" and "exporting powers such as China." Ouch--it seems the status of the US has fallen quite a bit in the last two years as the county is now being classified as 'a struggling debtor nation'.
So we've got a falling dollar, rising earnings and the promise of a conservative sweep in the November elections driving the markets higher--the question is whether those factors can keep powering the rally or are they already completely priced into the market?
The Fed's potential QE2 stimulus has been telegraphed for the last four weeks with almost daily speeches by Fed Governors touting the program. The S&P has gained 50 points since the September 21st FOMC statement. The market is convinced the Fed will act at ANY cost to insure economic growth. Analysts believe that $500 billion to $1 trillion of quantitative easing is now priced into the market but if it's anything less than that we could see some disappointed investors selling stocks.
Plus the market has priced in a Republican sweep on November 2nd but the closer we get to the election the tighter the races are becoming. The Democrats have a far larger budget than the Republicans. By some estimates the DNC and its offshoots have some $250 million to spread around in the last week of the campaign while the Republicans are closer to $100 million. With some of the hotly contested races attracting a blizzard of ads for the incumbents the odds of Republicans winning some of those seats are diminishing.
How this factors into the market on November 3rd is unknown. The groundswell of Republican support is shrinking but they are still expected to control the House. Will that be enough for businesses to breathe easier on hopes further government taxes and regulation will be postponed for at least two years? We won't know until after the smoke clears but a Republican victory is currently priced into the market and if anything else happens we could see a sell-off as well.
In spite of these potential pit-falls the big driver is still intact--the Fed's intention to create inflation by flooding the economy with cash. That force has been overcoming lesser fundamentals as wave after wave of cash finds a home in stocks. Bernanke wants to make it so painful to be in money markets and bond funds that people will eventually put the money into stocks--and that plan has been working--the question is...
HOW DO WE MAKE MONEY ON IT?
We've got two new plays lined up this week--one is bullish and the other bearish.
Our new bullish play is on a stock that looks ready to scream higher--the company just announced a new source of production that is TRIPLING their revenues. Plus what they produce increased in price as the dollar sinks. The stock has been climbing steadily since June but just retraced to its uptrend line giving us an extremely attractive entry point--one we'll be taking advantage of with some well-placed calls!
Our next play is just the opposite--the company announced decreasing sales over last year plus their forward guidance indicates even lower sales in the coming quarter and year. This company is struggling yet it's stock has climbed with the market to a new five month high and then rolled over this past week once earnings were known. This one looks ripe for some serious downside profit--an opportunity we'll be jumping on first thing Monday.
We've got two trades lined up to really move in their respective directions so let's get to it...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
NETFLIX (NLFX) JUMPED BY OVER TWENTY-DOLLARS AFTER ANNOUNCING BLOW-OUT EARNINGS WEDNESDAY NIGHT!
AND FREEPORT MCMORAN (FXC) SPIKED HIGHER BY OVER FOUR DOLLARS AFTER ANNOUNCING A TWENTY-SEVEN PERCENT PROFIT SURGE THURSDAY MORNING!
Those are some great earnings and stock performance---and we should be opening bottles of champagne and high-fiving each other--but both of these bullish plays were stopped out in the volatility immediately preceding their announcements! Now that hurts.
It's great to have been right on our analysis and direction of these two plays but the extreme choppiness of the markets early last week bounced us out before we could benefit from them. I know getting stopped out before the play takes off in our direction is super disappointing---but it's important to trade according to your discipline---especially with earnings plays. This one didn't turn out the way we wanted but we did play it the right way by setting solid safeguards to limit our losses--that's important and sticking to your discipline is something to be proud of.
The good news is earnings aren't over by a long shot and there are other stocks announcing with good prospects of moving the markets--and we're going to take advantage of that movement. To get an idea where the profits are this week let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
The SP-500 rocked back and forth last week finishing up just seven points at 1183.08. That is not exactly a huge performance but it was another week of gains keeping the uptrend intact.
After spiking lower Tuesday morning the Nasdaq gained back all of its losses plus some to close at 2479--up 10.62 on the week. This index is still looking bullish and is continuing to move toward the yearly high at 2535.28---any move above that level would cause another round of short-covering.
However there is a lot of profit on the table---Amazon has rallied $65 since July---a 50% move--NetFlix is up 70% and AAPL is up 28% since August---and there are many others. With year-end for mutual funds coming up this Friday October 29 there are some good reasons to lock in gains.
However the big driver in this market is still intact--a Federal Reserve bent on flooding the market with more dollars. As long as those dollars are still flowing into stocks we could see some new highs before the end of the year--but not without some volatility along the way.
There were two economic reports for Friday and they both concerned employment-- Regional Employment and Mass Layoffs. The regional payroll report showed that 34 states lost jobs in September. with 23 states reporting a lower unemployment rate. However that lower unemployment rate can be deceiving because anyone running out of employment benefits fell off the rolls.
The Mass Layoff report showed the number of layoff events declined for the third consecutive month. They fell from 1,546 in August to 1,486 in September. The number of workers affected fell from 150,192 in August to 133,379 in September. Manufacturing still accounted for more than 25% of the layoffs. The slowing of layoffs suggests the economy is growing but still at a very slow pace.
Next week's economic calendar is active with multiple housing reports, Fed surveys and the GDP on Friday. The GDP will be the most important report for the week and our first look at the Q3 rate of growth. Estimates have risen slightly over the last month but the whisper numbers are still in the 1.6% range--pretty anemic but still positive.
Economic news is important but the real market mover is still earnings. So far over one third of the S&P has announced--out of the 158 S&P companies reporting 79.1% beat estimates, 7% reported inline and 13.9% missed. Those that beat estimates posted average gains in earnings of 47.4% while companies that missed averaged a -33.1% miss.
So far the SP-500 is showing reported earnings for the quarter increasing 26.21% over 2009Q3. That's some good performance but companies that are reporting inline are often getting sold hard after announcing--especially without a lot of positive forward guidance. Evidently expectations are pretty high and traders are selling quickly unless a company really outperforms-- a sign of weakening bullish sentiment.
This week we've got Microsoft reporting on Thursday after the close---the biggest tech stock to report this week. Also important are 3M, Texas Instruments, Merck and a ton of chip stocks.
Another big driver of this market is--and will continue to be--the value of the dollar. As the dollar declines stocks have been rising with commodity stocks is particular gaining ground as it takes more dollars to buy their output.
The value of the dollar hit center stage at the G-20 conference this weekend. Leading up to the conference on Thursday Timothy Geithner said that all the major currencies were roughly equal and then he circulated a letter to the other finance ministers on Friday telling them to hike the value of their currencies in order to increase the value of their exports on the U.S. market. As you can imagine that letter created a roar of protest.
The letter was seen as a direct attack on China and warned of the dangers of seeking "competitive advantage by either weakening their currency or preventing appreciation of undervalued currency." Those comments were seen as pretty hypocritical considering the U.S. is on a major quantitative easing program creating massive quantities of artificial money in order to lower interest rates and devalue the currency making U.S. exports cheaper. As you can imagine Geithner warning other countries about doing the same thing did not go over well at the meeting.
The Japanese Finance Minister called Geithner "unrealistic" and "difficult." He also warned "strong volatility in currency markets would be harmful to the stability of the global economy and financial system." The BRIC countries were united in their condemnation of the Geithner letter and said bluntly that the U.S. would not succeed in pressuring other countries to do what the U.S. was not doing itself.
Nothing was expected to result from the G20 meeting but the recent moves in currencies prompted traders to exercise caution and go flat over the weekend. When the meeting closed on Saturday there was "agreement" not to have a currency war--but ironically that is exactly what we've got.
One of the closing statements of the meeting by South Korean Finance Minister Yoon Jeung-Hyun showed exactly how much of the world sees the US today. He said the two-day G20 meeting had laid to rest fears of a currency war between "struggling debtors such as the United States" and "exporting powers such as China." Ouch--it seems the status of the US has fallen quite a bit in the last two years as the county is now being classified as 'a struggling debtor nation'.
So we've got a falling dollar, rising earnings and the promise of a conservative sweep in the November elections driving the markets higher--the question is whether those factors can keep powering the rally or are they already completely priced into the market?
The Fed's potential QE2 stimulus has been telegraphed for the last four weeks with almost daily speeches by Fed Governors touting the program. The S&P has gained 50 points since the September 21st FOMC statement. The market is convinced the Fed will act at ANY cost to insure economic growth. Analysts believe that $500 billion to $1 trillion of quantitative easing is now priced into the market but if it's anything less than that we could see some disappointed investors selling stocks.
Plus the market has priced in a Republican sweep on November 2nd but the closer we get to the election the tighter the races are becoming. The Democrats have a far larger budget than the Republicans. By some estimates the DNC and its offshoots have some $250 million to spread around in the last week of the campaign while the Republicans are closer to $100 million. With some of the hotly contested races attracting a blizzard of ads for the incumbents the odds of Republicans winning some of those seats are diminishing.
How this factors into the market on November 3rd is unknown. The groundswell of Republican support is shrinking but they are still expected to control the House. Will that be enough for businesses to breathe easier on hopes further government taxes and regulation will be postponed for at least two years? We won't know until after the smoke clears but a Republican victory is currently priced into the market and if anything else happens we could see a sell-off as well.
In spite of these potential pit-falls the big driver is still intact--the Fed's intention to create inflation by flooding the economy with cash. That force has been overcoming lesser fundamentals as wave after wave of cash finds a home in stocks. Bernanke wants to make it so painful to be in money markets and bond funds that people will eventually put the money into stocks--and that plan has been working--the question is...
HOW DO WE MAKE MONEY ON IT?
We've got two new plays lined up this week--one is bullish and the other bearish.
Our new bullish play is on a stock that looks ready to scream higher--the company just announced a new source of production that is TRIPLING their revenues. Plus what they produce increased in price as the dollar sinks. The stock has been climbing steadily since June but just retraced to its uptrend line giving us an extremely attractive entry point--one we'll be taking advantage of with some well-placed calls!
Our next play is just the opposite--the company announced decreasing sales over last year plus their forward guidance indicates even lower sales in the coming quarter and year. This company is struggling yet it's stock has climbed with the market to a new five month high and then rolled over this past week once earnings were known. This one looks ripe for some serious downside profit--an opportunity we'll be jumping on first thing Monday.
We've got two trades lined up to really move in their respective directions so let's get to it...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
Monday, October 18, 2010
LAS VEGAS SAND (LVS) SHOT PAST OUR TRAILING TRIGGER ON MONDAY AND THEN REVERSED BLASTING US OUT OF OUR NOV 38 CALLS AT A SWEET SAME-DAY THIRTY-PERCENT PROFIT!
This past week the markets rocked low enough and high enough to bounce us out of every trade we had...
LAS VEGAS SAND (LVS) SHOT PAST OUR TRAILING TRIGGER ON MONDAY AND THEN REVERSED BLASTING US OUT OF OUR NOV 38 CALLS AT A SWEET SAME-DAY THIRTY-PERCENT PROFIT!
THEN OUR DIREXION DAILY 3X BULL FINANCIAL (FAS) BEAR CALL SPREAD EXPIRED WORTHLESS FRIDAY FOR AN EXTREMELY SATISFYING FIFTY-PERCENT GAIN!
That was the good news--but the volatility of the past week also stopped us out of the QQQQ and SKX at losses. This has been a tough market to trade but fortunately we've had our share of gains to off-set the losses. The question now is whether earnings will continue to drive us higher or are we in for a nasty reversal? To help answer that question let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
The major indices just keep on climbing--mostly on the back of some good earnings this past week out of Intel and Google. A total of 109 S&P-500 companies report this week along with 11 Dow components. Only 46 S&P companies have reported so far with 83% beating estimates and 9% missing their targets. Since 1994 an average of 62% normally beat but that has risen to 77% over the last four quarters due to easy comparisons in the prior year.
Earnings are now expected to increase +24.2% over Q3-2009---a slight improvement from the 23.6% estimate just a week ago.
The real leader in the markets last week as the Nasdaq---Google, Apple and Amazon powered a huge breakout with the index now poised for an assault on the year's highs. There is a good chance Apple will copy Google's performance with earnings on Monday keeping the move alive. The next heavyweight is on Thursday with Amazon announcing for another possible index jump higher.
Apple broke out to a new high on Friday with a $12 gain after Goldman gave them a new price target of $500. Apple will report earnings on Monday after the close and they are expected to beat estimates by a mile. This will be the first full quarter of sales for the iPhone 4 and it has been sold out all quarter with most sales backordered. Net income is expected to rise +130% to $3.83 billion. That equates to earnings per share of $4.09 on revenue of $18.9 billion.
IPad sales are expected to be 4.8 million units. The iPad was about the only tablet available in Q3 but that will change dramatically in Q4 as everyone else rushes to get products out for the holidays.
In spite of a stellar market last week the elephant in the room right now is the financial sector. On Friday S&P cut Bank America to a hold from a strong buy due to ongoing foreclosure woes. The problems stem from the major banks using robo-signers to sign tens of thousands of foreclosure documents without adequately researching each loan. These employees signed thousands of affidavits testifying to facts about the loans when they actually knew no details of the specific loan they were signing. They were just pushing paper as fast as they could in order to process foreclosures.
The use of this automatic signing process has prompted foreclosure halts by the major lenders until a review of the process can be completed. At least one state has already sued Ally Financial and expects to sue the other major banks. The allegations of fraud at "every level of the process" is prompting thousands of homeowner suits as well as suits from the investors who bought the packaged loans.
Plus earlier this week attorneys general from all 50 states launched a joint investigation into allegations that mortgage companies mishandled documents in foreclosing hundreds of thousands of homes. There were foreclosure proceedings on 930,437 properties in Q3 according to RealtyTrac. One in every 139 homes received a foreclosure notice in Q3 and a record 288,345 homes were actually seized by the banks.
Dick Bove, with Rochdale Securities, said the banks could lose up to $80 billion from the various suits and forced buybacks. The investors who bought the original loans may have a way to force the banks to buy back all the mortgage securities at face value if they can prove there was fraud at any point in the process. The Federal Home Loan Bank of Chicago sued the major lenders claiming they failed to disclose underwriting standards and had errors in their documentation. The bank is trying to recover more than $3.3 billion they paid for residential mortgage bank securities that went bad.
Banks were struggling to post decent profits before this mess and now they are faced with having to take charges for litigation expenses and potential settlements. If this progresses to the point of having to buy back previously packaged loans it could devastate the sector.
The halt in foreclosures as the mess is sorted out will also slow down the housing market even more as the nearly 300,000 homes slated for foreclosure in Q4 are pushed out into Q1 or even Q2.. Since more than a third of home sales are distressed this delay will be a serious blow to the housing industry.
It's been said in the past that the financial sector leads the markets--but as you can see from the charts above the markets are climbing--why? The most powerful influence on this market has been a flood of cheap dollars trying to find a home--and those dollars are finding that home in the stock market and in hard commodities.
Bernanke alluded to another quantitative easing program in his speech on Friday. As long as the Fed is applying downward pressure to rates and the dollar---the market will continue higher.
A few-cent drop in the dollar may not seem like much but when played using billion dollar trades in the derivatives market that is a big move. There are roughly $653 trillion in outstanding derivatives contracts and much of that is currency based. Traders are shorting the dollar, which produces cash they use to go long another currency, commodities or stocks. This is a very crowded trade but it is still gathering momentum---there are thousands of hedge funds and institutional investors still leveraging up these trades as each day passes. That is putting upward pressure on everything denominated in dollars including stocks.
So the bottom line is that even though there are some serious problems with the financials--and unemployment is still high--the markets continue to climb as the Fed induced ocean of money finds its way into the markets. This kind of unrestrained money production is creating a bubble in the bond market and possibly even the stock market--and it won't end well--but our concern is what to trade this week and...
HOW TO MAKE MONEY ON IT
We've got two trades lined up this week and they are both bullish--and they are both on stock market heavy weights due to release earnings--and both show charts that look ready to soar.
But as good as these two plays look we're not going to just throw our fate to the winds--we've got an intriguing hedging technique lined up to really cut your cost of entry--and your risk--while still leaving the door open for some huge upside!
So with earnings releases hitting the markets and the trend still climbing let's get started...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
LAS VEGAS SAND (LVS) SHOT PAST OUR TRAILING TRIGGER ON MONDAY AND THEN REVERSED BLASTING US OUT OF OUR NOV 38 CALLS AT A SWEET SAME-DAY THIRTY-PERCENT PROFIT!
THEN OUR DIREXION DAILY 3X BULL FINANCIAL (FAS) BEAR CALL SPREAD EXPIRED WORTHLESS FRIDAY FOR AN EXTREMELY SATISFYING FIFTY-PERCENT GAIN!
That was the good news--but the volatility of the past week also stopped us out of the QQQQ and SKX at losses. This has been a tough market to trade but fortunately we've had our share of gains to off-set the losses. The question now is whether earnings will continue to drive us higher or are we in for a nasty reversal? To help answer that question let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
The major indices just keep on climbing--mostly on the back of some good earnings this past week out of Intel and Google. A total of 109 S&P-500 companies report this week along with 11 Dow components. Only 46 S&P companies have reported so far with 83% beating estimates and 9% missing their targets. Since 1994 an average of 62% normally beat but that has risen to 77% over the last four quarters due to easy comparisons in the prior year.
Earnings are now expected to increase +24.2% over Q3-2009---a slight improvement from the 23.6% estimate just a week ago.
The real leader in the markets last week as the Nasdaq---Google, Apple and Amazon powered a huge breakout with the index now poised for an assault on the year's highs. There is a good chance Apple will copy Google's performance with earnings on Monday keeping the move alive. The next heavyweight is on Thursday with Amazon announcing for another possible index jump higher.
Apple broke out to a new high on Friday with a $12 gain after Goldman gave them a new price target of $500. Apple will report earnings on Monday after the close and they are expected to beat estimates by a mile. This will be the first full quarter of sales for the iPhone 4 and it has been sold out all quarter with most sales backordered. Net income is expected to rise +130% to $3.83 billion. That equates to earnings per share of $4.09 on revenue of $18.9 billion.
IPad sales are expected to be 4.8 million units. The iPad was about the only tablet available in Q3 but that will change dramatically in Q4 as everyone else rushes to get products out for the holidays.
In spite of a stellar market last week the elephant in the room right now is the financial sector. On Friday S&P cut Bank America to a hold from a strong buy due to ongoing foreclosure woes. The problems stem from the major banks using robo-signers to sign tens of thousands of foreclosure documents without adequately researching each loan. These employees signed thousands of affidavits testifying to facts about the loans when they actually knew no details of the specific loan they were signing. They were just pushing paper as fast as they could in order to process foreclosures.
The use of this automatic signing process has prompted foreclosure halts by the major lenders until a review of the process can be completed. At least one state has already sued Ally Financial and expects to sue the other major banks. The allegations of fraud at "every level of the process" is prompting thousands of homeowner suits as well as suits from the investors who bought the packaged loans.
Plus earlier this week attorneys general from all 50 states launched a joint investigation into allegations that mortgage companies mishandled documents in foreclosing hundreds of thousands of homes. There were foreclosure proceedings on 930,437 properties in Q3 according to RealtyTrac. One in every 139 homes received a foreclosure notice in Q3 and a record 288,345 homes were actually seized by the banks.
Dick Bove, with Rochdale Securities, said the banks could lose up to $80 billion from the various suits and forced buybacks. The investors who bought the original loans may have a way to force the banks to buy back all the mortgage securities at face value if they can prove there was fraud at any point in the process. The Federal Home Loan Bank of Chicago sued the major lenders claiming they failed to disclose underwriting standards and had errors in their documentation. The bank is trying to recover more than $3.3 billion they paid for residential mortgage bank securities that went bad.
Banks were struggling to post decent profits before this mess and now they are faced with having to take charges for litigation expenses and potential settlements. If this progresses to the point of having to buy back previously packaged loans it could devastate the sector.
The halt in foreclosures as the mess is sorted out will also slow down the housing market even more as the nearly 300,000 homes slated for foreclosure in Q4 are pushed out into Q1 or even Q2.. Since more than a third of home sales are distressed this delay will be a serious blow to the housing industry.
It's been said in the past that the financial sector leads the markets--but as you can see from the charts above the markets are climbing--why? The most powerful influence on this market has been a flood of cheap dollars trying to find a home--and those dollars are finding that home in the stock market and in hard commodities.
Bernanke alluded to another quantitative easing program in his speech on Friday. As long as the Fed is applying downward pressure to rates and the dollar---the market will continue higher.
A few-cent drop in the dollar may not seem like much but when played using billion dollar trades in the derivatives market that is a big move. There are roughly $653 trillion in outstanding derivatives contracts and much of that is currency based. Traders are shorting the dollar, which produces cash they use to go long another currency, commodities or stocks. This is a very crowded trade but it is still gathering momentum---there are thousands of hedge funds and institutional investors still leveraging up these trades as each day passes. That is putting upward pressure on everything denominated in dollars including stocks.
So the bottom line is that even though there are some serious problems with the financials--and unemployment is still high--the markets continue to climb as the Fed induced ocean of money finds its way into the markets. This kind of unrestrained money production is creating a bubble in the bond market and possibly even the stock market--and it won't end well--but our concern is what to trade this week and...
HOW TO MAKE MONEY ON IT
We've got two trades lined up this week and they are both bullish--and they are both on stock market heavy weights due to release earnings--and both show charts that look ready to soar.
But as good as these two plays look we're not going to just throw our fate to the winds--we've got an intriguing hedging technique lined up to really cut your cost of entry--and your risk--while still leaving the door open for some huge upside!
So with earnings releases hitting the markets and the trend still climbing let's get started...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
Monday, October 11, 2010
Knock Down a 79% Annualized Return with an Over 90% Probability of Success!
Awhile back at the 'How to Know the Perfect Time to Exit a Spread' webinar we talked about when to close a spread early--in other words, when to "Take the Money and Run!" The conclusion from that webinar was that whenever a credit spread has less than $0.05 cents remaining, it's a smart idea to close the trade and bag your profits because you instantly remove any further risk. Your margin is freed up for another spread and you can relax knowing the profits from the spread you closed are in the bag.
As we approach October expiration, consider closing out of any plays that have earned the majority of their credit---from about Wednesday on the market makers typically widen their bid/ask spreads making exits less efficient so either Tuesday’s close or Wednesday’s open would be a great time to close trades early. And depending on your risk tolerance, you may also even consider closing them out a bit earlier.
Of course there’s always the “option” to ride trades all the way to expiration and avoid further commissions---if a spread is really out of the money they’ll typically expire worthless and you'll keep all the credit---a great position to be in!
There's a lot more details on these and other exit strategies inside the Package Buyers' area of the website--for those of you with The Winning Secret trading package, you can just log in, click on the Video Tutorials tab and select the webinar you'd like to watch. And if you don't have the package yet, you can add this valuable information to your trading library right here.
Trader’s Tip:
Historically,
• October marks the end of the most bearish 6 month period for the Dow and S&P 500. It also marks the end of the most bearish 4 months for the NASDAQ.
• On 10/10/2008, the Dow lost 18.2%---1874 points---ending the week as the most bearish for the Dow in the history of Wall Street.
• October is known as the “bear killer”.
Key Dates:
• October 14th--options expiration for some indices.
• October 15th--options expiration for all equity and all other index options.
• November 18th--options expiration for some indices.
• November 19th--options expiration for all equity and all other index options.
Market Outlook
Friday, the Dow Jones industrial average closed above 11,000 for the first time in five months. Ironically, this 11K benchmark came the day before the three-year anniversary of the market's ALL-TIME high--and while investors remain hopeful that the Federal Reserve will take even more action to re-stimulate the economy, the Dow is still 22.3% below that remarkable day.
The release of a weak jobs report, along with a number of other bearish indicators---including the dollar losing more ground---has only fueled expectations that the Fed will announce a new program to encourage borrowing when it meets again after the mid-term elections. In addition to this new program, the traders are banking on the possibility that the Fed will print more dollars---another factor that sent the stock market rocketing higher last week.
This week, economic data will include consumer and producer prices, as well as retail sales and consumer sentiment. These reports should shed some light on whether or not the economy has slowed down enough to justify further action from the Fed.
Private employers, worried about potential tax hikes and the costs associated with health care, only added 64,000 workers last month which fell short of the 75,000 expected. Some 95,000 government jobs were axed which included temporary census employees. Overall, the unemployment rate is now holding steady at 9.6%.
While investors and traders wait to see if the Federal Reserve will take advantage of a window of opportunity, we’ll take this opportunity to take advantage of a 30-day window on a couple of ETF plays for the week...
What are the Secrets of the Week?
Our first play has been trading well within our short strikes since July--a perfect neutral candidate for a high-probability iron condor. And with one of the most bullish Septembers since the 1930’s now behind us, October is shaping up to be another strong month for the Bulls---what better time for a bull put spread?
Both plays are on ETFs and generate a generous 8-10% profit with an over 91% probability of success---and with only about a month’s time for these trades to play out, we definitely have the winds blowing in our direction. Let's get started...
You can get in on this week's trades along with two new high-probability trades per week by clicking here now. http://www.cashflowheaven.com/ws
Stack the Deck on Every Trade,
Robert
As we approach October expiration, consider closing out of any plays that have earned the majority of their credit---from about Wednesday on the market makers typically widen their bid/ask spreads making exits less efficient so either Tuesday’s close or Wednesday’s open would be a great time to close trades early. And depending on your risk tolerance, you may also even consider closing them out a bit earlier.
Of course there’s always the “option” to ride trades all the way to expiration and avoid further commissions---if a spread is really out of the money they’ll typically expire worthless and you'll keep all the credit---a great position to be in!
There's a lot more details on these and other exit strategies inside the Package Buyers' area of the website--for those of you with The Winning Secret trading package, you can just log in, click on the Video Tutorials tab and select the webinar you'd like to watch. And if you don't have the package yet, you can add this valuable information to your trading library right here.
Trader’s Tip:
Historically,
• October marks the end of the most bearish 6 month period for the Dow and S&P 500. It also marks the end of the most bearish 4 months for the NASDAQ.
• On 10/10/2008, the Dow lost 18.2%---1874 points---ending the week as the most bearish for the Dow in the history of Wall Street.
• October is known as the “bear killer”.
Key Dates:
• October 14th--options expiration for some indices.
• October 15th--options expiration for all equity and all other index options.
• November 18th--options expiration for some indices.
• November 19th--options expiration for all equity and all other index options.
Market Outlook
Friday, the Dow Jones industrial average closed above 11,000 for the first time in five months. Ironically, this 11K benchmark came the day before the three-year anniversary of the market's ALL-TIME high--and while investors remain hopeful that the Federal Reserve will take even more action to re-stimulate the economy, the Dow is still 22.3% below that remarkable day.
The release of a weak jobs report, along with a number of other bearish indicators---including the dollar losing more ground---has only fueled expectations that the Fed will announce a new program to encourage borrowing when it meets again after the mid-term elections. In addition to this new program, the traders are banking on the possibility that the Fed will print more dollars---another factor that sent the stock market rocketing higher last week.
This week, economic data will include consumer and producer prices, as well as retail sales and consumer sentiment. These reports should shed some light on whether or not the economy has slowed down enough to justify further action from the Fed.
Private employers, worried about potential tax hikes and the costs associated with health care, only added 64,000 workers last month which fell short of the 75,000 expected. Some 95,000 government jobs were axed which included temporary census employees. Overall, the unemployment rate is now holding steady at 9.6%.
While investors and traders wait to see if the Federal Reserve will take advantage of a window of opportunity, we’ll take this opportunity to take advantage of a 30-day window on a couple of ETF plays for the week...
What are the Secrets of the Week?
Our first play has been trading well within our short strikes since July--a perfect neutral candidate for a high-probability iron condor. And with one of the most bullish Septembers since the 1930’s now behind us, October is shaping up to be another strong month for the Bulls---what better time for a bull put spread?
Both plays are on ETFs and generate a generous 8-10% profit with an over 91% probability of success---and with only about a month’s time for these trades to play out, we definitely have the winds blowing in our direction. Let's get started...
You can get in on this week's trades along with two new high-probability trades per week by clicking here now. http://www.cashflowheaven.com/ws
Stack the Deck on Every Trade,
Robert
THE USO SHOT HIGHER MONDAY THEN REVERSED STOPPING US OUT OF OUR 34 CALLS AT AN EYE-POPPING TWO-HUNDRED-NINETY-SIX PERCENT PROFIT!
After a dip on Monday the markets blasted higher for the rest of the week--taking our USO play with along for the ride...
THE USO SHOT HIGHER MONDAY THEN REVERSED STOPPING US OUT OF OUR 34 CALLS AT AN EYE-POPPING TWO-HUNDRED-NINETY-SIX PERCENT PROFIT!
WE ALSO BAGGED A SMALL GAIN ON OUR YUM! BRANDS (YUM) STRADDLE AS THE STOCK TOOK OFF AFTER EARNINGS!
That was a good week. YUM could have been even better as the stock continued to the upside in the days following earnings--but we followed our discipline and were stopped out early--and fortunately at a profit. We also got out of STEC early at a loss as it wasn't performing---only to see the thing launch through the roof the day after our exit! Now THAT is a great example of why the markets can be frustrating!
The bottom line though is it was a VERY profitable week--and we've got two news trades lined up to continue the momentum--so let's get started by taking a good look at...
WHICH WAY THIS MARKET IS HEADED
The SP-500 closed at 1165 on Friday which are highs not seen since May. No matter what the news is this market just keeps steadily marching higher. There is an impressive 35% of the S&P 500 stocks trading at or near new 52-week highs and there were 41 S&P stocks that made new highs on Friday alone.
And all that bullishness is in spite of the fact that the Non Farm Payrolls report Friday was horrible and this earnings season is not shaping up to be all that great either. S&P earnings are expected to only increase from 8% to 10% while revenues are set to increase by only 2%--not exactly overwhelming numbers.
The Nasdaq closed at 2401 on Friday at highs also not seen since May and very close to the high of the day--another bullish signal. A move higher on Monday will force the shorts to cover continuing this rally. Apple broke its downtrend last week and is now threatening to make a new all-time high--another positive factor influencing the Nasdaq.
The only potential spoiler for the techs is the chip sector where we've seen a slew of chip warnings lately. Another company warned Thursday night and their shares fell -10% in trading on Friday. Kulicke & Soffa (KLIC) warned that revenue for the current quarter would be "significantly below" Q3 due to softening industry conditions. The company designs semiconductor assembly equipment and is sometimes seen as one of the strong bellwethers in the chip sector. A slowdown in KLIC business means a future slowdown in the chip sector in general. This makes Intel's earnings on Tuesday even more critical for the tech sector.
The focus this week will shift to Q3 earnings as Intel, JP Morgan, Google and GE headline the earnings calendar. Intel on Tuesday will be critical since the chip sector has been receiving almost daily downgrades due to lower than projected PC sales. If Intel lowers guidance again on Wednesday it could be a bad day for investor sentiment.
One testament to the bullishness of the markets right now is how bad the Non Farm Payrolls report was on Friday--and yet the indices continued to climb. The Non Farm Payrolls showed a headline loss of -95,000 jobs when almost everyone was expecting a gain. This was the largest loss of jobs in three months and July and August were revised lower by a total of 15,000 jobs. The preliminary benchmark revision for the prior 12-month period was an additional loss of -366,000 jobs!
The government was the biggest drag on employment last month with 159,000 job losses compared with a +64,000 gain in private payrolls. Private job creation declined slightly in Q3 to +274,000 from +353,000 in Q2. That trend is heading in the wrong direction. Federal payrolls declined -76,000 while state and local governments cut 83,000 jobs.
The unemployment rate was unchanged at 9.6% but the U6 unemployment rose to 17.1%---the highest since last December. The U6 number includes those without jobs and those who are working part time to pay the bills while searching for a job in their field. Instead of employment improving it is still getting worse. Those out of work for more than six months were 41.7% of the total while those out of work for less than a month rose to 19.1%---and again that trend is moving in the wrong direction.
And the thing is--the situation is actually worse that what is shown. What wasn't reported in these employment numbers are the 250,000 workers in 37 states that lost their jobs on October 2nd. Those jobs were part of the $5 billion in stimulus for the Temporary Assistance for Needy Families program. Tens of thousands of these workers lost their jobs when the program ended on October 1st. The exact count is unknown because each of the 37 states configured the programs differently but many states told the workers not to show up for work beginning on October 2nd. These layoffs were not included in the September payroll report because the program conveniently ended a couple days after the survey period for the last jobs report before the elections. The TANF was only one of the stimulus programs ending on October 2nd. Also ending was a $2 billion subsidized childcare program and a $2.1 billion boost for Head Start. Jobs will be lost from both of those programs as well.
So with an employment report that bearish--why did the markets go up on Friday?
Because traders believe the weak jobs report assures the Fed will initiate a new round of quantitative easing. That policy would continue to push the dollar lower and stocks higher. In their best "don't fight the Fed" style traders bought the dip and the market kept on climbing.
The Fed of course is trying to keep a lid on all this enthusiasm. Early Friday morning St Louis Fed President James Bullard tryed to dampen expectations when he said "policymakers could wait until December if they felt the need for greater clarity on the economic outlook." Also, "this upcoming FOMC meeting is going to be a tough call, because the economy has slowed but it hasn't slowed so much that it's an obvious case to do something." However he also said, "It does not seem like inflation is going to hit our target unless we take further action."
Dallas Fed President Richard Fisher cautioned about assuming the Fed would enact QE2. "The markets have drawn too quick a conclusion that this is a likely event. If it is to occur it will only occur after thoughtful discussion." He also warned that it is not clear if the benefits of further quantitative easing outweigh the costs.
But of course traders aren't buying this jaw-boning because they figure the Fed doesn't have a choice. The markets have clearly priced in a move at the November 3rd FOMC meeting but Fed heads are going out of their way to caution against considering it a done deal. This growing wave of caution could weigh on the markets if anyone actually begins to take it seriously.
Economic fundamentals are clearly weak and NOT heading in a positive direction but as we've seen that flat out doesn't matter--as long as the SP-500 stays above horizontal support at 1150 this market is likely moving higher. As long as the dollar is declining we should see stocks rise---assuming traders can get past Intel's report on Tuesday. It's unlikely the Fed will do anything to sabotage the markets before the elections so as long as corporate forward outlooks are reasonable stocks should keep driving higher--the question is...
HOW DO WE MAKE MONEY ON IT?
We've got two plays this week that look so gosh darn bullish it's enough to make me buy their actual stocks for my retirement accounts--but since buying stocks is against our religion here at The Pearly Gates--we're going to get into some high-odds calls instead!
Our first play is on a company that just increased sales to an all time high--right in the middle of the recession! They have a product that folks are jumping on left and right and the stock just jumped off of major support and is now heading decidedly higher--a move we'll be jumping on with some well-placed calls first thing Monday morning!
Our next play is on a company that just catapulted their revenue an astounding 51% equating to a half a billion dollars as money floods into the company from their overseas operations. This company is selling a product in Asia that is going like gang-busters--and their revenue shows it--and so does the trend of this incredible climber. We'll be jumping on board first thing Monday for what looks like another stellar ride to the upside!
We've got two excellent plays lined up on a market that wants to move so let's get to it...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
THE USO SHOT HIGHER MONDAY THEN REVERSED STOPPING US OUT OF OUR 34 CALLS AT AN EYE-POPPING TWO-HUNDRED-NINETY-SIX PERCENT PROFIT!
WE ALSO BAGGED A SMALL GAIN ON OUR YUM! BRANDS (YUM) STRADDLE AS THE STOCK TOOK OFF AFTER EARNINGS!
That was a good week. YUM could have been even better as the stock continued to the upside in the days following earnings--but we followed our discipline and were stopped out early--and fortunately at a profit. We also got out of STEC early at a loss as it wasn't performing---only to see the thing launch through the roof the day after our exit! Now THAT is a great example of why the markets can be frustrating!
The bottom line though is it was a VERY profitable week--and we've got two news trades lined up to continue the momentum--so let's get started by taking a good look at...
WHICH WAY THIS MARKET IS HEADED
The SP-500 closed at 1165 on Friday which are highs not seen since May. No matter what the news is this market just keeps steadily marching higher. There is an impressive 35% of the S&P 500 stocks trading at or near new 52-week highs and there were 41 S&P stocks that made new highs on Friday alone.
And all that bullishness is in spite of the fact that the Non Farm Payrolls report Friday was horrible and this earnings season is not shaping up to be all that great either. S&P earnings are expected to only increase from 8% to 10% while revenues are set to increase by only 2%--not exactly overwhelming numbers.
The Nasdaq closed at 2401 on Friday at highs also not seen since May and very close to the high of the day--another bullish signal. A move higher on Monday will force the shorts to cover continuing this rally. Apple broke its downtrend last week and is now threatening to make a new all-time high--another positive factor influencing the Nasdaq.
The only potential spoiler for the techs is the chip sector where we've seen a slew of chip warnings lately. Another company warned Thursday night and their shares fell -10% in trading on Friday. Kulicke & Soffa (KLIC) warned that revenue for the current quarter would be "significantly below" Q3 due to softening industry conditions. The company designs semiconductor assembly equipment and is sometimes seen as one of the strong bellwethers in the chip sector. A slowdown in KLIC business means a future slowdown in the chip sector in general. This makes Intel's earnings on Tuesday even more critical for the tech sector.
The focus this week will shift to Q3 earnings as Intel, JP Morgan, Google and GE headline the earnings calendar. Intel on Tuesday will be critical since the chip sector has been receiving almost daily downgrades due to lower than projected PC sales. If Intel lowers guidance again on Wednesday it could be a bad day for investor sentiment.
One testament to the bullishness of the markets right now is how bad the Non Farm Payrolls report was on Friday--and yet the indices continued to climb. The Non Farm Payrolls showed a headline loss of -95,000 jobs when almost everyone was expecting a gain. This was the largest loss of jobs in three months and July and August were revised lower by a total of 15,000 jobs. The preliminary benchmark revision for the prior 12-month period was an additional loss of -366,000 jobs!
The government was the biggest drag on employment last month with 159,000 job losses compared with a +64,000 gain in private payrolls. Private job creation declined slightly in Q3 to +274,000 from +353,000 in Q2. That trend is heading in the wrong direction. Federal payrolls declined -76,000 while state and local governments cut 83,000 jobs.
The unemployment rate was unchanged at 9.6% but the U6 unemployment rose to 17.1%---the highest since last December. The U6 number includes those without jobs and those who are working part time to pay the bills while searching for a job in their field. Instead of employment improving it is still getting worse. Those out of work for more than six months were 41.7% of the total while those out of work for less than a month rose to 19.1%---and again that trend is moving in the wrong direction.
And the thing is--the situation is actually worse that what is shown. What wasn't reported in these employment numbers are the 250,000 workers in 37 states that lost their jobs on October 2nd. Those jobs were part of the $5 billion in stimulus for the Temporary Assistance for Needy Families program. Tens of thousands of these workers lost their jobs when the program ended on October 1st. The exact count is unknown because each of the 37 states configured the programs differently but many states told the workers not to show up for work beginning on October 2nd. These layoffs were not included in the September payroll report because the program conveniently ended a couple days after the survey period for the last jobs report before the elections. The TANF was only one of the stimulus programs ending on October 2nd. Also ending was a $2 billion subsidized childcare program and a $2.1 billion boost for Head Start. Jobs will be lost from both of those programs as well.
So with an employment report that bearish--why did the markets go up on Friday?
Because traders believe the weak jobs report assures the Fed will initiate a new round of quantitative easing. That policy would continue to push the dollar lower and stocks higher. In their best "don't fight the Fed" style traders bought the dip and the market kept on climbing.
The Fed of course is trying to keep a lid on all this enthusiasm. Early Friday morning St Louis Fed President James Bullard tryed to dampen expectations when he said "policymakers could wait until December if they felt the need for greater clarity on the economic outlook." Also, "this upcoming FOMC meeting is going to be a tough call, because the economy has slowed but it hasn't slowed so much that it's an obvious case to do something." However he also said, "It does not seem like inflation is going to hit our target unless we take further action."
Dallas Fed President Richard Fisher cautioned about assuming the Fed would enact QE2. "The markets have drawn too quick a conclusion that this is a likely event. If it is to occur it will only occur after thoughtful discussion." He also warned that it is not clear if the benefits of further quantitative easing outweigh the costs.
But of course traders aren't buying this jaw-boning because they figure the Fed doesn't have a choice. The markets have clearly priced in a move at the November 3rd FOMC meeting but Fed heads are going out of their way to caution against considering it a done deal. This growing wave of caution could weigh on the markets if anyone actually begins to take it seriously.
Economic fundamentals are clearly weak and NOT heading in a positive direction but as we've seen that flat out doesn't matter--as long as the SP-500 stays above horizontal support at 1150 this market is likely moving higher. As long as the dollar is declining we should see stocks rise---assuming traders can get past Intel's report on Tuesday. It's unlikely the Fed will do anything to sabotage the markets before the elections so as long as corporate forward outlooks are reasonable stocks should keep driving higher--the question is...
HOW DO WE MAKE MONEY ON IT?
We've got two plays this week that look so gosh darn bullish it's enough to make me buy their actual stocks for my retirement accounts--but since buying stocks is against our religion here at The Pearly Gates--we're going to get into some high-odds calls instead!
Our first play is on a company that just increased sales to an all time high--right in the middle of the recession! They have a product that folks are jumping on left and right and the stock just jumped off of major support and is now heading decidedly higher--a move we'll be jumping on with some well-placed calls first thing Monday morning!
Our next play is on a company that just catapulted their revenue an astounding 51% equating to a half a billion dollars as money floods into the company from their overseas operations. This company is selling a product in Asia that is going like gang-busters--and their revenue shows it--and so does the trend of this incredible climber. We'll be jumping on board first thing Monday for what looks like another stellar ride to the upside!
We've got two excellent plays lined up on a market that wants to move so let's get to it...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
Thursday, October 7, 2010
How to Make Money with the Most Important Rule of Gap Trading
When you see a stock either gap or make a big move in a certain direction--and then flatten out--it doesn't mean the move is over by a long shot. In fact usually the stock is just resting up--waiting for the next jump. So here's the biggest key--always trade in the direction of the gap.
Here is a great example--on September 28th M&T Bank (MTB) was featured as the "short of the day" because it had gapped lower followed by a long red candle lower. Subscribers could have purchased the October $80.00 puts for just $.70--but as you can see the stock was flat for several days. But then yesterday the stock shot lower again launching those .70 cent puts to a whopping $4.20 turning a modest $700 into $4200--that's a stunning 500% profit in just 8 days!
This is the power of gap trading--this short came during a major market breakout to new highs and it demonstrates the incredible effectiveness of trading relative strength and weakness--exactly what the trades inside The Daily Report are based on. A new bullish trade and bearish trade is published inside the Options Success website every day and then a Live Update table shows what is really performing--making your trade selection easy. To take advantage of these kind of set-ups and get a Trading Package to put it all together click this link now.
Market Commentary - The market has broken out above major resistance at SPY 115 and it has been able to hold that level for two days. If it can tread water and get past tomorrow’s Unemployment Report, it will rally to the highs of the year in the next few weeks.
The economic news has been improving. Chicago PMI, ISM manufacturing, China’s PMI and ISM services all came in better than expected. This morning, initial jobless claims dropped 11,000 to a seasonally adjusted 445,000. That marks the fourth week of steady improvement. Retailers have been reporting strong numbers and 80% have posted sales gains. On average, retail sales rose 2.8% in September and that topped analysts’ estimates.
Tomorrow’s Unemployment Report is expected to show flat job growth. Private sector gains are projected to offset public sector job losses. If this actually transpires, the market will rally off of the number. Yesterday, ADP reported that the private sector lost 39,000 jobs when consensus estimates forecasted 18,000 new jobs. The market shrugged this news off. ADP has been lower than the government’s estimates for three straight months. If tomorrow’s Unemployment Report comes in better than -50,000 there is an excellent chance the market will move higher.
Initial jobless claims have been improving and the market will latch onto that silver lining. Economic numbers that would normally “disappoint” have been taken in stride. Asset Managers are anxious to buy stocks ahead of earnings season and the November elections. They have been waiting for a pullback but they never got one--now that the market has broken out above major resistance, they are scrambling to get long. No one wants to miss a year-end rally.
Earnings season officially kicked off this afternoon when Alcoa posted its numbers. Even though profits were down the company's outlook was good--and the stock is rising in the afterhours market. Basic metals have been improving and with Alcoa trading near the low end of its range the stock has room to run.
Banks don’t start announcing until later next week. This sector could post weak numbers, but that is already factored into the market. IPOs have been light, trading volumes are extremely low and financial reform will soon bite into profits. Semiconductors have lagged the market and they could be the catalyst for the next leg of this rally. The big releases will start the week of October 18th.
The economic and earnings news is light next week and that favors the bulls. The momentum is strong and if the market can survive tomorrow’s Unemployment Report, it has nothing standing in its way. The next two weeks should be bullish and so take profits on call positions as we approach the highs of the year. Most of the good news will already be “baked in” by the time November election results are posted.
China’s growth is intact and credit concerns in Europe have temporarily subsided. These are two potential spoilers for this rally but they shouldn't come into play for the remainder of this year. Stocks are cheap relative to bonds and money will flow from fixed income into equities. Any decline should be swift and shallow presenting a buying opportunity.
In spite of the market's bullishness there are long-term issues that make it difficult to be overly optimistic. As 2011 rolls around, unemployment, structural deficits and higher taxes will weigh on the market. For now, if the SPY is above 115 so stay long. To find out what is performing right now--and what is likely to--get inside the Daily Report by clicking right here: http://www.cashflowheaven.com/os.
Trade Well,
Pete
Here is a great example--on September 28th M&T Bank (MTB) was featured as the "short of the day" because it had gapped lower followed by a long red candle lower. Subscribers could have purchased the October $80.00 puts for just $.70--but as you can see the stock was flat for several days. But then yesterday the stock shot lower again launching those .70 cent puts to a whopping $4.20 turning a modest $700 into $4200--that's a stunning 500% profit in just 8 days!
This is the power of gap trading--this short came during a major market breakout to new highs and it demonstrates the incredible effectiveness of trading relative strength and weakness--exactly what the trades inside The Daily Report are based on. A new bullish trade and bearish trade is published inside the Options Success website every day and then a Live Update table shows what is really performing--making your trade selection easy. To take advantage of these kind of set-ups and get a Trading Package to put it all together click this link now.
Market Commentary - The market has broken out above major resistance at SPY 115 and it has been able to hold that level for two days. If it can tread water and get past tomorrow’s Unemployment Report, it will rally to the highs of the year in the next few weeks.
The economic news has been improving. Chicago PMI, ISM manufacturing, China’s PMI and ISM services all came in better than expected. This morning, initial jobless claims dropped 11,000 to a seasonally adjusted 445,000. That marks the fourth week of steady improvement. Retailers have been reporting strong numbers and 80% have posted sales gains. On average, retail sales rose 2.8% in September and that topped analysts’ estimates.
Tomorrow’s Unemployment Report is expected to show flat job growth. Private sector gains are projected to offset public sector job losses. If this actually transpires, the market will rally off of the number. Yesterday, ADP reported that the private sector lost 39,000 jobs when consensus estimates forecasted 18,000 new jobs. The market shrugged this news off. ADP has been lower than the government’s estimates for three straight months. If tomorrow’s Unemployment Report comes in better than -50,000 there is an excellent chance the market will move higher.
Initial jobless claims have been improving and the market will latch onto that silver lining. Economic numbers that would normally “disappoint” have been taken in stride. Asset Managers are anxious to buy stocks ahead of earnings season and the November elections. They have been waiting for a pullback but they never got one--now that the market has broken out above major resistance, they are scrambling to get long. No one wants to miss a year-end rally.
Earnings season officially kicked off this afternoon when Alcoa posted its numbers. Even though profits were down the company's outlook was good--and the stock is rising in the afterhours market. Basic metals have been improving and with Alcoa trading near the low end of its range the stock has room to run.
Banks don’t start announcing until later next week. This sector could post weak numbers, but that is already factored into the market. IPOs have been light, trading volumes are extremely low and financial reform will soon bite into profits. Semiconductors have lagged the market and they could be the catalyst for the next leg of this rally. The big releases will start the week of October 18th.
The economic and earnings news is light next week and that favors the bulls. The momentum is strong and if the market can survive tomorrow’s Unemployment Report, it has nothing standing in its way. The next two weeks should be bullish and so take profits on call positions as we approach the highs of the year. Most of the good news will already be “baked in” by the time November election results are posted.
China’s growth is intact and credit concerns in Europe have temporarily subsided. These are two potential spoilers for this rally but they shouldn't come into play for the remainder of this year. Stocks are cheap relative to bonds and money will flow from fixed income into equities. Any decline should be swift and shallow presenting a buying opportunity.
In spite of the market's bullishness there are long-term issues that make it difficult to be overly optimistic. As 2011 rolls around, unemployment, structural deficits and higher taxes will weigh on the market. For now, if the SPY is above 115 so stay long. To find out what is performing right now--and what is likely to--get inside the Daily Report by clicking right here: http://www.cashflowheaven.com/os.
Trade Well,
Pete
Monday, October 4, 2010
Knock Down a 68% Annualized Return with an Over 91% Probability of Success!
One of our subscribers---John---recently sent in an email with a question about limit orders---we’ve touched on this before during several of our webinars, but with many new subscribers onboard, it's time we reviewed the technique.
(If you are a Winning Secret package holder, you can log into the package buyers' area of the website to review any of the webinars--and if you're not, you can get your hands on one right here.)
John writes:
“I notice that when you enter a trade you don't get filled at the market. Do you use the margin spread to calculate a value higher than the market for the Sell to Open and a lower value for the Buy to Open? How do you determine these values?”
When placing an order, it can be beneficial to negotiate for a higher credit based on the bid, ask and spread amount. As an example, let's say we want to put on an Iron Condor for Caterpillar (CAT). If we look at the chart below, we can see the "NBBO (National Best Bid and Offer) Quote of $0.45 (Bid) by $0.54 (Ask)" with the difference between the two possible net credits---the bid/ask spread---being $0.54 - $0.45 = $0.09.
What most retail traders don't know is that this spread amount (the $0.09) is actually negotiable with the market makers---as a rule of thumb, about 30-40%. Generally, you can just divide the difference by a third ($0.09 / 3 = $0.03) and then add that amount back on to the bid price ($0.45 + $0.03 = $0.48). You can then set a limit price on the order form for $0.48. It may not seem like much but it makes a big difference over time as far as your return on investment.
Thanks for your question, John!
Trader’s Tip:
Historically,
• October marks the end of the most bearish 6 month period for the Dow and S&P 500. It also marks the end of the most bearish 4 months for the NASDAQ.
• On 10/10/2008, the Dow lost 18.2%---1874 points---ending the week as the most bearish for the Dow in the history of Wall Street.
• October is known as the “bear killer”.
• Tuesday, October 5th is a bearish trading day.
Key Dates:
• October 14th--options expiration for some indices.
• October 15th--options expiration for all equity and all other index options.
• November 18th--options expiration for some indices.
• November 19th--options expiration for all equity and all other index options.
Market Outlook
Last week the markets traded mostly flat after digesting the largest rise any September has seen since 1939. Even though consumer confidence dropped to its lowest level since February, traders are just more focused on encouraging signs in the corporate world including an increase in deal-making. Unfortunately, there's a big difference of opinion between Main Street and Wall Street on how the economy is doing. The focus, right now, is more on executives than consumers.
On Wednesday, European and U.S. markets fell as labor protests across the EU fueled worries about countries' ability to reduce their heavy debt. Demonstrations in Brussels, as well as Spain, Ireland and Portugal were observed as labor unions protested against problems and debt caused by the banks. The unrest has raised concerns that countries, such as Spain which may be downgraded again soon, will have difficulty repairing their public finances. Germany has pushed for tougher regulations while France is against near-automatic sanctions saying politicians and not unelected officials in Brussels should determine government policy.
However even wide-spread European unrest couldn't undermine the euro and boost the dollar--the dollar has fallen to a nine month low as the specter of more 'quantitative easing' (money printing) by the Fed drives the dollar lower and commodities higher.
Back on Wall Street, investors took profits after a month-long rally with the expectation of higher volatility going forward as the most bullish quarter in a year nears its end. The VIX futures show that the options market has been very skeptical about this rally. The CBOE Volatility index, a gauge of investors' fear and greed, rose 2.9% to 23.25 while VIX futures were predicting levels of 24 - 28 for the remainder of the year and above 30 for 2011.
For spread traders, these levels are ideal---they provide us with just enough volatility to collect a decent premium yet not too volatile to whipsaw the markets---which leads us to the real question....
What are the Secrets of the Week?
The markets are at a place now where investors are trying to figure out what the right level should be---- especially with earnings season starting this week--Alcoa the first Dow component to report, announces this Thursday.
Options traders also appear to be bracing for higher volatility in the near-term. Both the VIX and the VXN have closed higher for the last four sessions out of five. Concerned about upcoming economic reports and 3rd quarter earnings have most investors nervous. And with September turning out so well, many investors don't have a clear plan as they are locked between fears of a pullback and an ongoing uptrend.
Luckily, we do.
Our two candidates for this week offer a 7-9+% Return on Investment with a 91% to 94% probability of win. And our third play offers a similar return and probability---Plus with less than two weeks to the finish line, time decay (Theta) is accelerating in our favor. With so little time before expiration, let’s get going...
You can get in on this week's trades along with two new high-probability trades per week by clicking here now. http://www.cashflowheaven.com/ws
(If you are a Winning Secret package holder, you can log into the package buyers' area of the website to review any of the webinars--and if you're not, you can get your hands on one right here.)
John writes:
“I notice that when you enter a trade you don't get filled at the market. Do you use the margin spread to calculate a value higher than the market for the Sell to Open and a lower value for the Buy to Open? How do you determine these values?”
When placing an order, it can be beneficial to negotiate for a higher credit based on the bid, ask and spread amount. As an example, let's say we want to put on an Iron Condor for Caterpillar (CAT). If we look at the chart below, we can see the "NBBO (National Best Bid and Offer) Quote of $0.45 (Bid) by $0.54 (Ask)" with the difference between the two possible net credits---the bid/ask spread---being $0.54 - $0.45 = $0.09.
What most retail traders don't know is that this spread amount (the $0.09) is actually negotiable with the market makers---as a rule of thumb, about 30-40%. Generally, you can just divide the difference by a third ($0.09 / 3 = $0.03) and then add that amount back on to the bid price ($0.45 + $0.03 = $0.48). You can then set a limit price on the order form for $0.48. It may not seem like much but it makes a big difference over time as far as your return on investment.
Thanks for your question, John!
Trader’s Tip:
Historically,
• October marks the end of the most bearish 6 month period for the Dow and S&P 500. It also marks the end of the most bearish 4 months for the NASDAQ.
• On 10/10/2008, the Dow lost 18.2%---1874 points---ending the week as the most bearish for the Dow in the history of Wall Street.
• October is known as the “bear killer”.
• Tuesday, October 5th is a bearish trading day.
Key Dates:
• October 14th--options expiration for some indices.
• October 15th--options expiration for all equity and all other index options.
• November 18th--options expiration for some indices.
• November 19th--options expiration for all equity and all other index options.
Market Outlook
Last week the markets traded mostly flat after digesting the largest rise any September has seen since 1939. Even though consumer confidence dropped to its lowest level since February, traders are just more focused on encouraging signs in the corporate world including an increase in deal-making. Unfortunately, there's a big difference of opinion between Main Street and Wall Street on how the economy is doing. The focus, right now, is more on executives than consumers.
On Wednesday, European and U.S. markets fell as labor protests across the EU fueled worries about countries' ability to reduce their heavy debt. Demonstrations in Brussels, as well as Spain, Ireland and Portugal were observed as labor unions protested against problems and debt caused by the banks. The unrest has raised concerns that countries, such as Spain which may be downgraded again soon, will have difficulty repairing their public finances. Germany has pushed for tougher regulations while France is against near-automatic sanctions saying politicians and not unelected officials in Brussels should determine government policy.
However even wide-spread European unrest couldn't undermine the euro and boost the dollar--the dollar has fallen to a nine month low as the specter of more 'quantitative easing' (money printing) by the Fed drives the dollar lower and commodities higher.
Back on Wall Street, investors took profits after a month-long rally with the expectation of higher volatility going forward as the most bullish quarter in a year nears its end. The VIX futures show that the options market has been very skeptical about this rally. The CBOE Volatility index, a gauge of investors' fear and greed, rose 2.9% to 23.25 while VIX futures were predicting levels of 24 - 28 for the remainder of the year and above 30 for 2011.
For spread traders, these levels are ideal---they provide us with just enough volatility to collect a decent premium yet not too volatile to whipsaw the markets---which leads us to the real question....
What are the Secrets of the Week?
The markets are at a place now where investors are trying to figure out what the right level should be---- especially with earnings season starting this week--Alcoa the first Dow component to report, announces this Thursday.
Options traders also appear to be bracing for higher volatility in the near-term. Both the VIX and the VXN have closed higher for the last four sessions out of five. Concerned about upcoming economic reports and 3rd quarter earnings have most investors nervous. And with September turning out so well, many investors don't have a clear plan as they are locked between fears of a pullback and an ongoing uptrend.
Luckily, we do.
Our two candidates for this week offer a 7-9+% Return on Investment with a 91% to 94% probability of win. And our third play offers a similar return and probability---Plus with less than two weeks to the finish line, time decay (Theta) is accelerating in our favor. With so little time before expiration, let’s get going...
You can get in on this week's trades along with two new high-probability trades per week by clicking here now. http://www.cashflowheaven.com/ws
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