This Week We Saw a 16%, a 30%, and a 69% Return

This past week the deteriorating condition of Steve Jobs health threw us a curve on our Apple (AAPL) calls---but we still managed to...

SELL 70% OF OUR AAPL CALL POSITION BEFORE EARNINGS FOR A DECENT SIXTEEN PERCENT PROFIT!

AND WE SOLD THE OTHER 30% AFTER EARNING FOR A MORE GENEROUS THIRTY-SEVEN PERCENT PROFIT!

PLUS RATHENON (RTN) ZOOMED HIGHER THIS PAST WEEK PROPELLING OUR FEB 50 CALLS TO AN IMPRESSIVE SIXTY-NINE PERCENT OPEN PROFIT!

Those were some nice gains and I'm glad we made them but the Apple news underscores the risk we take over the weekend. The news about Jobs was released on MLK day--a holiday--but the point is the same--making trading decisions over the weekend exposes us to weekend news risk.

For that reason this will be the last issue of the Pearly Gates to come out on a Sunday. From now on we'll be releasing our updates and new plays early Wednesday evening. This gives us time to see how the weekend news affects the markets and plays out over the next few days.

Our first new issue will be coming out this Wednesday at 6:00pm PT (which is 9:00pm ET) in the form of a 90 minute webinar which you can sign up for right here.

During this webinar we'll explore a method of keeping our losses to a bare minimum while still leaving the door open for unlimited gains.

If you've been trading any length of time you know how important it is to keep your losses low--big losses are extremely difficult to overcome mathematically.

At the beginning of this year I made a promise to post our monthly track record on the public section of the Pearly Gates at the beginning of every month. The idea came that if we are not making people money over the long term then the service should not exist. If we post our track record every month then folks can see for themselves if they want to join--and if the record is bad people will not sign-up and our existing subscribers will quit.

Therefore in order to survive the service needs to be good for the subscribers--just as it should be. This new trading style due to be introduced this Wednesday evening is a big step toward making sure our subscribers are profitable.

We exited two plays this past week besides AAPL--they were KMX and NDAQ. They were directional options trades and we lost on both. This is a situation that I would like to see become increasingly rare over the coming months.

Now let's get down to the business of focusing on some high potential trades this week. To do that let's first take a good look at...

WHICH WAY THIS MARKET IS HEADED

The twomajor indices diverged this past week as 'sell the news' profit taking set in. The SP-500 lost 0.8 percent ending a seven-week winning streak.

The Nasdaq dropped 2.4 percent dragged lower by Google.

Google shares were down 2.4 percent at $611.83 after hitting an intraday high of $641.73 as confidence wavered that its co-founder Larry Page would rejuvenate the company in his new position as chief executive.

Late Thursday, Google reported earnings that beat Wall Street’s expectations.

The action in Google shares is not so much about Google earnings, but a factor of the market itself as traders are 'selling the news' to lock in profits even if the news is good. We might be seeing more of that as more earnings are released this coming week.

Nearly a quarter of the S&P 500 and about half of the 30 Dow stocks report earnings this week, including American Express, McDonald's, Johnson and Johnson, Caterpillar and Boeing.

The Fed meets Tuesday and Wednesday, and there will be reports on housing, durable goods and fourth quarter GDP. President Obama gives his State of the Union address Tuesday.

Plenty of action to drive stocks--one way or the other.

Even though the big trend is still bullish on the charts--the market could be starting to unravel. Stocks that were the most popular are falling the fastest (like APPL and GOOG), and the small caps, as represented by the Russell 2000 are really tanking.

Last week's sell-off could be a beginning response to inflation. Inflation is more visible in China and Europe, but in the months ahead it's going to be more visible here.

Midweek, China added to those concerns when fourth quarter GDP was a surprisingly high 9.8 percent. Commodities and stock markets were hit by concerns China would tighten, cooling global growth. Markets are expecting to see China announce further rate hikes and it's the Chinese market that has been driving commodity demand.

The worst performing Standard and Poor's sector was the commodities-related materials sector, down 3.3 percent, followed by tech, down 1.7 percent.

The reason inflation kills bull markets is it usually comes when the economy is overheating, so the response is monetary tightening. From an stock market perspective, that's a negative scenario. We have an up-tick in inflation in China and it's being met with further tightening and emerging markets in general are having that same problem.

The interesting difference is the U.S., because we don't have any tightening bias, so we're likely to get the full benefit of upside to global growth. Plus as other countries tighten, their currencies rise against the dollar, making U.S. exports cheaper.

The downside of course is as the dollar falls in purchasing power we get inflation--something we've already seen in commodity prices, particularly food and energy.

For now however we have a pretty good base for a continuation of the rally. While the markets are always vulnerable to a correction at this point in the cycle that correction is liable to be bought. The key is the Fed continuing to keep rates artificially low--if rates start rising the market will crash.

The Fed is not expected to take any action at its two-day meeting on Tuesday, but it could comment on the economy and inflation outlook. The main question is whether the tone changes and does anyone dissent on the current QE program.

We'll get a batch of housing reports this week including the S&P Case Shiller home price index on Tuesday; new home sales on Wednesday and pending home sales on Thursday. Nothing is likely to change in housing unless we see a big creation in new jobs--not likely for awhile.

Europe has been a focus for the markets, but sovereign spreads narrowed and the euro continued to rise as the past week came to a close. Apparently the market is believing the efforts to solve the sovereign crisis, including a plan by Spain to shore up its savings banks. The bottom line however is the European Union has an unsolvable problem that will only get worse--it's just a matter of time until the next debt bomb hits--but for now things have quieted down.

President Obama speaks to the nation Tuesday night and many expect him to display the more centrist posture he has taken lately. He may even talk about "spending restraint".

In addition the President may indicate the top corporate tax rate, which is 35 percent, is too high. Right now it's the second highest in the world and if Japan's new Prime Minister has his way the US will have the highest in the world. There's a reason US corporations have been fleeing the country for the past 30 years.

President Obama may even talk about corporate and individual tax reform and possibly even entitlement reform like Social Security.

He probably won't be particularly specific, but he'll likely say a few things that are friendly to business. After making the tax cut deal in December the President may have found a template to get re-elected. If the State of the Union address spins any of the above toward a more business friendly government it should be mildly positive for the markets.

We've got a quarter of the SP-500 reporting this week along with a ton of market moving economic events--the question is...

HOW DO WE MAKE MONEY ON IT?

We've got two trades lined up this week with some excellent potential.

The first is on an inverse ETF that looks ready to rocket to the moon. However we can take a very low cost--about a dollar--'both ways' position to protect us on the downside while leaving the door open for some big gains on the upside.

Our second trade is also skewed to the upside on a company with a very bullish chart that has taken a dip. This dip will likely be bought making us some great profits but just like our first trade we'll be protected in both directions.

We've got a turbulent market with two great set-ups to play it so let's get started...

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