OUR NEW BULLISH PLAY ON TRANSOCEAN (RIG) IS ALREADY UP AND NOW LOOKS SET TO BREAK THROUGH ITS TRAILING TRIGGER ADDING HUGE VALUE TO OUR 60 CALLS!

This past week our most recent plays fared extremely well...

OUR NEW BULLISH PLAY ON TRANSOCEAN (RIG) IS ALREADY UP AND NOW LOOKS SET TO BREAK THROUGH ITS TRAILING TRIGGER ADDING HUGE VALUE TO OUR 60 CALLS!

AND GOLDMAN SACHS (GS) ALREADY SHOT THROUGH THE ROOF BLASTING US OUT OF THE PLAY AT A STUNNING THREE-HUNDRED-TWENTY-EIGHT-PERCENT PROFIT!

Those trades feel pretty good but they were offset by expiring positions in the SDS and QQQQ--plus we got out of RTN at a loss earlier in the week and we were finally stopped out of UHS on Friday for another loss. Our new bullish plays have done pretty well but our old bearish trades just got killed as the markets zoomed higher.

The weird thing is the giant disconnect between some very bearish fundamentals and a market that continues to climb--which makes it even more important to take a good look at...

WHICH WAY THIS MARKET IS HEADED

The markets have put in a phenomenal two weeks but are now looking overbought. The Dow and Nasdaq ended with gains on Friday that put them on a streak of 11 wins out of the last 13 trading days. The S&P has been up 10 of the last 13 days.

The S&P finally rallied to test strong resistance at 1130 on Friday but the index was slammed back to 1122 trading sideways the rest of the day. The opening spike to 1131 was a result of quadruple witching---the closing value on the S&P options are determined by the opening print on the S&P on Friday so there is plenty of incentive to cover shorts at the open driving the SP-500 to a temporary spike higher.

The Nasdaq jumped higher on individual stock news---Oracle (ORCL) reported earnings of 42-cents compared to analyst estimates of 37-cents and the shares jumped +8%.

Texas Instruments announced a $7.5 billion stock buyback and raised its dividend by 8% which pushed the semiconductor index higher even though the news doesn't imply increasing sales for the sector. TXN shares jumped +3% to $25.73.

Quadruple witching expiration plus the boost from Oracle's earnings and Texas Instrument's $7.5 billion buyback combined to push the Nasdaq over strong horizontal resistance at 2300 marking a breakout. The problem is in spite of good news out of ORCL and TXN there is little on the tech landscape to inspire confidence. PC sales estimates are still slow with FBR cutting Microsoft estimates and chip sales forecasts still coming in negative. It's hard to see what is pushing the Nasdaq higher since most of the tech news is negative.

And that's not the only negative news out right now---the preliminary number for September Consumer Sentiment released Friday declined to 66.6 from 68.9 recording the lowest level since August 2009. The decline came exclusively from the expectations component, which fell from 62.9 to 59.1. The -3.8 point fall in expectations is substantial and suggests the short term rebound from the back to school season has faded.

Sentiment expectations are often news driven as the month saw more jobs lost---home sales fell a cliff and home prices are declining again. Politicians are talking down the economy in order to explain how they would fix it and none of that is helping consumer sentiment.

Of course sentiment goes beyond the news--people are feeling the drop in their net wealth over the last year as both the stock market and the real estate market--the two most popular asset classes--have fallen over the past five months.

Unfortunately sentiment isn't likely to improve with the news coming out this week. There are four major housing reports coming out over the next few days and they should all be negative. Expect a decline in prices and a rise in inventories. This bearish news will test the resolve of the stock market bulls unless there is a very unexpected improvement in sales.

Real estate analysts have been lowering numbers almost weekly for the last month in order to remove the optimism from their prior estimates. Even with the downgrades existing home sales are projected to have risen slightly in August but it is only a calendar blip as the last rush of home sales to close before the school year. Moody's is predicting another 8% decline in home prices because of the number of pending foreclosures. They expect the market to bottom in Q3-2011--which is quite a ways off for most folks.

The most closely watch economic event this week is the FOMC meeting on Tuesday. There are conflicting expectations for another round of easing however it's hard to see how further easing could help since rates are about as low as they can go right now.

The Jobless Claims on Thursday will also be a huge key for any continuing rally. The next reading is the one that will correct for any abnormalities in the Labor Day reporting cycle. Moody's is saying it would take a +2.9% GDP rate to produce a positive jobs picture. Anything under 2.9% would result in a net jobs drain. Based on current estimates our Q3 GDP should be something in the 1.3% growth range or less than half what it would take to actually grow jobs. That suggests negative net employment will be with us for quite awhile.

Another economic bellwether came in bearish when FedEx announced on Thursday it was closing 100 of its trucking terminals and cutting 1,700 jobs due to lack of demand. The closures will come on Jan-30th after the holiday shipping season. FedEx reported earnings of $1.20 per share for Q2 and that missed analyst estimates by a penny. The FedEx freight division has been a drag on profits because the demand for shipping items like refrigerators and washing machines continues to be weak.

So we've got deteriorating fundamentals and a bullish but overbought stock market--the question is...

HOW DO WE MAKE MONEY ON IT?

Fortunately for us options traders there are lots of ways to skin a cat--and we're going to trade one of the most effective this week. This is a perfect way to trade when you are interested in big returns but can't watch the market as closely as you would like.

As you know I'm heading out this week to the remote reaches of the Himalayas and won't be able to check on the markets---except on the rare occasion when an Internet connection is available--but I would still like a way for us to knock down some impressive results. After looking high and low I've found two incredible trades that promise outstanding returns over the next month---with VERY little risk. It doesn't get a whole lot better than this and when you see what we have planned you are going to get super excited.

By the time I get back to the States the first week of November we should have a substantially bigger chunk of money in our accounts than we do right now--so let's get started...

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