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!

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...

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