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...

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