THE SLV SHOT HIGHER BOOSTING OUR 28 CALLS TO AN EIGHTEEN PERCENT OPEN GAIN!

This past week the market's flat-lined as traders took a well deserved break--but our silver play still racked up some nice gains...

THE SLV SHOT HIGHER BOOSTING OUR 28 CALLS TO AN EIGHTEEN PERCENT OPEN GAIN!

That was a nice move but it looks like there is more to come as the SLV finished the week close to its highs--a good sign for more profits this week.

Last week we also got stopped out of Cyprus Semiconductor (CRUS) at a nasty loss as the stock dipped below our stop. Losses are never fun but it was time to get out of this play anyway as the stock has been flat for the past ten days--as options buyers we need stocks that move and this one wasn't.

The question now is where are the stocks moving this week? And in what direction? To help answer those questions let's take a good look at...

WHICH WAY THIS MARKET IS HEADED

The major indices stalled going into the end of the year after putting in an outstanding performance over the past few months.

The S&P 500 edged down Friday closing at 1257.64---up 13% for the year. The index climbed 6.5% this month, marking its best December performance in 19 years.

The Nasdaq shed 10.11 to finish at 2,652.87--up 17% from a year ago. Even though the Nasdaq finished its best December since 1999 weakness in the large caps like Apple, Google, Netflix and F5 Networks is a warning for January.

For tech investors this week is going to provide plenty of news to trade off of with a whirlwind of updates from the Consumer Electronics show in Las Vegas. This is the biggest show of the year and the place where everyone will showcase their new products. At last year's show the iPad was just a rumor and a year later the company has sold 14 million units--and that figure could double in 2011. However, the competition in the tablet space is really heating up.

The major vendors will be displaying tablets with 7, 9, 10 and even 12-inch screens. The biggest competition will be the Android powered devices with dozens of offerings in every format imaginable. Motorola is expected to show off a 4G version for Verizon running the Android OS which will probably be the biggest competitor to the iPad.

The big chip companies are in an all out battle for the hearts of these new tech devices. Intel is producing chips for 18 tablets, Nvidia 14, Texas Instruments 6 and Qualcomm 5. The attention from the CES show should create some volatility in the tech sector and if the new products are well received it could negatively impact Apple (AAPL) as the company does not show at this event.

For the first week of 2011 we have quite a bit of economic news. The first is the national ISM Manufacturing Index on Monday. The regional indexes have been posting some pretty strong gains but the consensus estimates for the national report is only for a minor improvement. If the ISM surprises to the upside it could give a boost to the market during the early January institutional fund flows.

The second event is the FOMC minutes for the December meeting which will be released on Tuesday. Considering how divided the FOMC members have been recently it will be interesting to see how the conversations went in that meeting. If the divisions are becoming wider will that impact the fate of the QE2 program? Does the Fed see the economy improving or inflation starting to rise? Traders will be reading the minutes closely but chances are good there will be very little market driving news and QE2 will remain intact.

The big event is the Non-Farm Payrolls for December on Friday. The consensus estimate is for a gain of 125,000 compared to the disappointing gain of only 39,000 in November. Some analysts are expecting a much higher number. Morgan Stanley is expecting a gain of +160,000. These higher estimates may have inflated expectations and anything even in the consensus range could be a disappointment.

There will be an abundance of year-end retirement contributions hitting the tape early in the week but there is also some big economic events and a lot of after tax profit taking waiting to occur. The timing of the profit taking is going to be the key. In some years the fund managers wait for the year end fund flows to dry up before they pull the exit trigger. Sometimes they wait for the first couple weeks of the earnings cycle in hopes of getting one more bounce before they exit. In years with big Q4 moves they tend to exit earlier in order to protect those gains--and that's what we've got this year.

Chances are extremely good we'll get a dip in the next two weeks and that dip should make us some excellent profits on the right puts and set us up for the next move higher by buying calls on the dip.

Any dip should provide a good buying opportunity as the economic recovery is accelerating--a trend demonstrated in nearly every economic report over the last couple months. The October pause is behind us and all the regional Fed reports are rebounding strongly.

Nearly all analysts expect the profits on the S&P to be a record in 2011. With any kind of PE expansion for a recovering economy the S&P could be 1450 or higher by year-end. The Morgan Stanley target is 1425 with highs above that but a cooling by year-end.

The financial sector is recovering. Bank lending has suddenly taken a sharp turn higher and analysts expect strong M&A activity in 2011 because of the new financial regulations. This will be positive for the market.

Home sales, to the surprise of many, are actually holding up in the late fourth quarter. Buying activity is increasing despite a rise in mortgage rates. The foreclosure cloud will remain over the market in 2011 but a very low inventory of new homes will help push prices higher. Many are beginning to feel the bottom is behind us and now there is pressure to buy something before rates move much higher.

The energy market will continue to strengthen. Crude prices will rise and fall but energy stocks should continue higher. There will be a flurry of M&A as smaller companies are gobbled up. It is getting easier to buy reserves than find them. As the global economic recovery accelerates the demand for oil will rise along with prices.

The longer term outlook is bullish as the Fed continues to create fresh money that finds a home in stocks--however the short-term outlook is a January dip--the question is...

HOW DO WE MAKE MONEY ON IT?

We've got two high-potential plays lined up and they are both bearish. We'll likely see some upside this week but it won't last as any spikes higher will be met with profit taking. Over the past ten years the market has declined in January with an average 139 points lost between the January highs and the February lows on the SP-500. With the gains as high as they have been over the past three months the January sell-off is liable to come a little early this year.

The amazing thing about both our new positions is they have bearish charts already--even in the face of a very bullish market. Traders are selling these stocks now and that selling should accelerate with any market decline--an event that will really rack up the gains on the right puts!

After a week of calm we've not got a market ready to move--so let's get going...

For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg