WHEN OUR TRAILING TRIGGER WAS EXCEEDED ON INTEL (INTC) WEDNESDAY WE HAD A FORTY-ONE PERCENT OPEN PROFIT IN JUST THREE DAYS!

This past week was a lot of fun as earnings expectations gave way to profit taking...

WHEN OUR TRAILING TRIGGER WAS EXCEEDED ON INTEL (INTC) WEDNESDAY WE HAD A FORTY-ONE PERCENT OPEN PROFIT IN JUST THREE DAYS!

Once our trailing triggers are exceeded many subscribers take profits but even if you waited until Thursday mornings open (like I did) you still made a respectable four-day ten-percent profit!

Plus our other new play from last week LLTC--is already in profit territory as the puts have more than doubled. Friday's plunge should have seen you sell the call side of this high-potential straddle to regain some of your investment. With the stock heading lower we should do really well on the put side of this play.

Earlier this past week CBE shot higher stopping us out of our puts on that play and also earlier in the week we got out of FDX.

We're starting off this week in pretty good shape but the big question after Friday's plunge is...

WHICH WAY THIS MARKET IS HEADED

The markets broke down Friday which was interesting considering how great Intel's earnings were.

Intel posted earnings of 40-cents per share compared to already bullish analyst estimates of 30-cents besting expectations by a substantial ten cents. This quarter last year the company earned 4 cents so it grew earnings a whopping 1000% over last year. Plus Intel posted record gross margins of 64.7% and provided strong guidance for 2010.

Traders WERE NOT disappointed with Intel's earnings--traders took profits while they had them--in fact the selling began after hours Thursday night ahead of expiration Friday.

Friday's option expiration was a major once-a-year event. This was LEAP expiration on options that have been around for two years--that's a lot of options that need to be settled and we're likely to see Friday's volatility spill over to Tuesday's open. Over 9 billion shares traded on Friday with 7.3 million in down volume---the heaviest volume day since December 18th.

The JP Morgan earnings were a much bigger cause than Intel in driving the markets lower mainly because of the ongoing concerns over potential bank losses on weak consumer and commercial loans. The banking sector had been trending down for about two months since the October highs due to loan concerns and dilution issues. On January 4th the sector jumped higher as new money came into the market with the Banking Index adding about 15% in a little over a week. With JPM the first big bank to report the pressure was on to post strong earnings and good guidance.

JPM posted earnings of $3.3 billion in Q4 and $11.7 billion for the full year--pretty impressive.

When you think back on the implosion in the banking sector over the last 15 months these earnings are amazing and they show what a strong bank JP Morgan is. However, even strong banks get hit when borrowers quit making their payments.

Chase Card Services lost $2.33 billion for all of 2009 and is unlikely to turn a profit this year. Chase retail services made only $97 million for 2009 after posting a $399 million loss in Q4. Chase agreed to temporarily modify about 600,000 mortgages and 89,000 have been made permanent.

But in spite of all that the bank still made $3.3 billion for the quarter.

What roiled the markets was a warning from CEO Jamie Dimon that he remained cautious about 2010 considering the job and housing markets continued to be weak.

"We don't have much visibility beyond the middle of this year and much will depend on how the economy behaves." He also said the economy was still too fragile to declare the worst was over

The JPM results on Friday sent up warning flags for this week because we'll be getting earnings from Citi, MS, WFC, BAC, GS, FITB, BBT and KEY. If JPM is taking such big hits from loan losses then what about the other banks? This worry sent the financial sector into a dive and it will probably take some good news from more than one bank to revive any upside. That 15% rally in financials since Jan 4th is going to be weighing heavily on the market this week as traders move to take profits.

The key to market direction this week is obviously bank earnings but there are also a handful of tech stocks to keep trading active. IBM on Tuesday is expected to produce strong earnings and could revive faith in tech stocks. EBay and Google report on Wed/Thr and will be heavily watched as well.

Aside from those releases the earnings calendar is skinny with the tidal wave of reports coming the following week with heavy hitters like Apple and Microsoft scheduled to report.

Friday's dip was profit taking accelerated by option expiration and the negative comments from Jamie Dimon. We are overdue for a decent size correction but any real selling should wait until after the major earnings reports between now and the end of the month--the question is...

HOW DO WE MAKE MONEY ON IT?

We've got two plays lined up with some significant profit potential. The first is a leverage on leverage play on the banking sector which should line up very well with the news coming out this week--this one could make us a fortune by this time next week.

Our second is a put play is on a metals company that just rolled over big time--when you see this chart you are going to be chomping at the bit to ride this one lower because with the right puts we should do extremely well.

We've got a market starting to churn with two great plays ready to ride it--so let's get going...
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