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...

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