After Monday's pop higher the markets bounced all week searching for a sustained direction--and that movement bumped us out of several plays...
EXPEDIA (EXPE) PLUNGED MONDAY HITTING THE TRIGGER ON OUR FEB 24 PUTS WITHIN THE FIRST HOUR AND THEN REVERSED STOPPING US OUT AT A FAST FOURTEEN PERCENT GAIN!
THEN AT MONDAY'S CLOSE SILVER (SLV) BEGAN TO FALL STOPPING US OUT OF OUR JANUARY 28 CALLS AT AN EIGHTEEN PERCENT PROFIT!
Those were two nice plays and the profits are appreciated--but we also got stopped out of our DuPont Fabros puts for a loss as the stock blipped above our stop on Tuesday before rolling over once again to the downside. It is very frustrating to be right on overall direction and still get stopped out because a little volatility triggered a stop/loss. This is one of the reasons 'both ways' trades are so appealing--stop losses and being right on direction become a lot less relevant.
The markets had a good first week and could continue--but we may still see a January sell-off. To get a better idea let's take a good look at...
WHICH WAY THIS MARKET IS HEADED
This past week the SP-500 bounced between 1262 and 1277 as traders wait for earnings season to begin this week. The key here is there was no January sell-off--at least not this past week and that's a good sign because there were factors that could have driven the markets lower--like Friday's Non-Farm Payrolls report.
The Nasdaq also looks bullish as every time its uptrend was tested the index bounced higher. Plenty of new gadgets were introduced at the CES show in Vegas last week--that and earnings should keep interest high in the techs for now.
The big surprise last week was employment. When the ADP report came on Wednesday it showed a gain of 297,000 jobs in December---2.5 times estimates. All of a sudden it seemed probable that the Non Farm Payrolls released on Friday would blow away estimates to the upside as well.
Unfortunately those hopes were dashed when the Non-Farm Payroll report showed a gain of only 103,000 jobs. Private payrolls rose +113,000 jobs but government jobs declined by -10,000. However the job gains from the prior two months were revised higher for a total gain of 70,000--enough to keep the market's bullish by the close.
The big driver this week will be earnings. Alcoa kicks off the Q4 cycle on Monday. Also reporting on Monday will be Apollo Group and homebuilder Lennar. Intel will give us some insight into the techs on on Thursday and JP Morgan is our first look at the financials reporting on Friday. The following week begins the real flood but this week should give us an advance peek with these few majors reporting.
According to S&P earnings for the SP-500 are expected to have grown +27% over the fourth quarter of 2009. Thompson Reuters is a little more optimistic with a 32% growth projection. This will be the fifth consecutive quarter of increased earnings after nine straight quarters of declines.
According to S&P the financials will lead with a mind-boggling +250% increase in profits, followed by energy at +118%, materials +70%, discretionary at +63%, information technology +52% and industrials at +26%. The lower performing sectors are healthcare +11%, telecommunications +7%, utilities +7% and consumer staples +6%.
That 27% earnings growth sounds great until you compare it to the prior three quarters. Coming out of the recession in 2010-Q1 earnings rose +92%, Q2 +51% and Q3 +37%. It's not that earnings are declining--it's that the comparison quarters are becoming harder to beat so the percentage increases are falling.
The fourth quarter's earnings increase is coming from continued cost cutting, a decent increase in revenues in the low double digits and the increase in stock buybacks. When companies buy back shares there are fewer shares outstanding and that increases the earnings per share even without an increase in actual earnings.
As long as earnings show at least a small beat the rally could continue another week or two--but I would not expect any big leg higher given the market's overbought conditions and the rising debt problems in Europe (and eventually here at home) without a decent dip first.
This week Portugal, Italy and Spain will attempt to auction debt and those auctions will be watched very closely. Portugal sold six-month bills on Wednesday at 3.686% and this higher interest rate is causing some serious worries about what those countries will have to pay when they auction their long dated debt this week.
Spreads on some European debt against the German bund were at or near record levels. This came after the EU suggested senior bond holders might have to share in the losses of distressed banks. This would be done by regulators writing down debt and converting it to equity in order to rescue the institution. For instance, if a bank had sold $500 million in debt and could not make the debt payments the regulators would write down that debt to something like $200 million and convert the $300 million loss into equity in the bank. If the bank recovered the bondholders might escape with a breakeven. This proposal did not set well with investors who just want to be secured lenders not unsecured stockholders.
The problems in Europe pushed the dollar to a +3.6% gain against the euro for the week. That was the biggest move for the dollar since August. The rise in the dollar crushed commodities with silver falling -7% for the week along with gold (-$54), copper and crude falling -3.7% each.
Another problem weighing on commodities is the pending rebalance of commodity index funds. The DJ-UBS Commodity Index and the S&P GSCI Index, with about $200 billion in commodity funds tracking those indexes will be rebalanced between Jan-7th and 13th. Basically the indexes try to maintain a specific ratio of commodities in the index. In a year where a commodity like copper has rallied +50% the indexes have to rebalance to bring copper representation back down to the correct ratio. This means the funds tied to these indexes will have to sell copper, oil, silver, etc in order to match the rebalanced index structure.
According to fund flows 2010 was a year where the perceived safety of bonds was still preferred to stocks--but that is changing. A total of $39 billion flowed out of equity funds in 2010 and an astounding $271 billion flowed into bond funds. Investors were putting new cash into the safety of bonds over worries of a second recessionary dip. However the last two months has seen money begin to flow out of bond funds and back into equities. If it were not for the European debt crisis we would likely be seeing some major money flows back into equities.
By the looks of things S&P earnings are going to be at new record highs this year as all that new money finds its way into the economy. Cost cutting during the recession has made companies leaner and more cost efficient. As spending improves so will their profits. While we know there will be ups and downs in the market in 2011 the prevailing direction will be higher.
Since 1950 there have been 61 first weeks of trading and 38 of those were positive including this past week. When there is a positive first week there is an 87% correlation to a positive gain for the entire year. When there is a decline in the first week there is only a 50% correlation to a decline for the rest of the year. This past week the SP-500 was up 13.86 or 1.1%--a good sign for the year.
So we've got our first major earnings this week, a ton of debt being auctioned in Europe and a market still climbing higher--the question is...
HOW DO WE MAKE MONEY ON IT?
We've got two plays lined up this week--the first is bullish and the second is a 'both ways' trade with a high probability of success.
Our first trade is on a stock with a history of running higher into earnings--and often doing even better after they are announced. We'll be taking a bullish position with a twist that I think you'll love!
Our second play is on a high volatility tech stock with earnings coming up this month. We can buy both puts and calls out until February for less than two dollars giving us a very high likelihood of success--exactly the way we like it!
We've got two trades lined up on a market ready to blast into earnings season so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on
www.cashflowheaven.com/pg
Monday, January 10, 2011
Friday, January 7, 2011
These Relatives Don't Borrow Money--They Pay You Money!
Relative Strength and Relative Weakness are the kind of relatives you want--here's why...
This week's picks from the Daily Report demonstrates the power of trading relative strength and weakness. Take a look at these two stocks subscribers could have jumped on just a few days ago. One pick is up 390% and the other is up 290%!
A few days ago (January 3rd), POT was featured in the Daily Report as the "long of the day". Subscribers could have purchased the Jan $170 calls for $.87. Today, they have traded as high as $4.28. That is a 390% profit to start off the New Year!
Then last Friday (December 31st), ZUMZ was featured as the "short of the day". Subscribers could have purchased the January $25 puts for just $.50. Today, they traded as high as $1.95 producing a 290% profit in a week!
These stocks were just recommended this past week and you could have been in them. Get the 'relative edge' by signing-up for the Daily Report today. You'll get two new trades each day and a Live Update table ranks all of the stocks on a watchlist so you know right where to look for the strongest candidates. Subscribe now! http://www.optionssuccess.com/
Market Commentary - Yesterday, the market staged an impressive rally after ADP reported its strongest private sector job growth – ever. Analysts were expecting 100,000 new jobs and 300,000 were added in December. Private sector employment is the key to a sustained economic recovery.
Analysts scrambled to revise their expectations for Friday’s Unemployment Report. Most have bumped their projections up by 40,000 and anything less than 180,000 will be viewed negatively. Initial jobless claims have been dropping consistently and the four-week moving average is declining. This bodes well for tomorrow’s number. Seasonal adjustments to initial jobless claims made the number look better last week and that was reversed this morning. All told, the number is encouraging and we should see decent job growth tomorrow.
Last week, Chicago PMI jumped dramatically. That pop in manufacturing was supported by a better-than-expected ISM manufacturing number and stronger factory orders this week. Yesterday, ISM services also beat expectations. Retail sales, consumer sentiment, GDP and durable goods orders have all improved and economic activity is rebounding.
The FOMC minutes revealed that the Fed is steadfast in its commitment to quantitative easing. It feels employment conditions are tenuous, housing is poor and inflation is benign. The safety net of lower interest rates is also adding to investor confidence.
The economy will benefit from lower taxation. Republicans and Democrats agreed to extend the Bush tax credits and to lower payroll taxes. With more money in their pockets, Americans will spend. More than two thirds of our economy is dependent on consumption.
Holiday sales have been strong and earnings should be good. We are two weeks away from the beginning of earnings season and stocks typically rally into the announcements.
January is typically a bullish month. This is the third year of a presidential term and that has also been bullish historically.
Last weekend, China released its PMI. It declined slightly to 53.9, but that was anticipated. China has raised bank reserve requirements and it recently bumped interest rates up a quarter-point. These measures have barely slowed their runaway economy.
The credit crisis in Europe is not likely to impact the market for at least a month. The ECB has plenty of money in its coffers to support bond auctions and China said that they will buy Spanish debt. In the absence of a credit crisis, the market will rally.
Stock prices look a little tired, but I do not see them declining much. Money is rotating out of bonds and gold as investors gain confidence. Asset Managers are waiting for a pullback, but I don’t believe we will see one after yesterday’s strong employment number. Stocks should continue to grind higher as long as European interest rates stabilize.
If tomorrow’s Unemployment Report shows strong private sector job growth then buy in the money call options. Positions should still be relatively small. The key is to hit singles on the way up and so you don’t get blindsided by a selloff in Europe. We will be watching those auctions very closely.
We've been finding excellent opportunities on both sides of the market making it easy to carry both long and short positions--in this market it's important to be able to profit in either direction. I recommend a weighting favoring the upside by a margin of 3:1 to take advantage of the trend but still allowing your shorts to provide a nice hedge. In some cases (like ZUMZ), your hedges will make money as the market moves higher.
Trade well,
Pete
Important Note: Options Success provides two high-probability stock set-ups every day the market is open but DOES NOT provide specific buy or sell recommendations relating to the options on those stocks--the specific option, strike price, month of expiration and other decisions are made by each trader individually based on the strategies they've selected---customer feedback shows the most successful subscribers use the strategy guidelines suggested in our Options Success Trading Package.
If you have not already purchased the Options Success trading package and signed up for our daily stock picks we highly recommend you do so (your options account will thank you!) Click on this link to get started http://www.cashflowheaven.com/os
.
This week's picks from the Daily Report demonstrates the power of trading relative strength and weakness. Take a look at these two stocks subscribers could have jumped on just a few days ago. One pick is up 390% and the other is up 290%!
A few days ago (January 3rd), POT was featured in the Daily Report as the "long of the day". Subscribers could have purchased the Jan $170 calls for $.87. Today, they have traded as high as $4.28. That is a 390% profit to start off the New Year!
Then last Friday (December 31st), ZUMZ was featured as the "short of the day". Subscribers could have purchased the January $25 puts for just $.50. Today, they traded as high as $1.95 producing a 290% profit in a week!
These stocks were just recommended this past week and you could have been in them. Get the 'relative edge' by signing-up for the Daily Report today. You'll get two new trades each day and a Live Update table ranks all of the stocks on a watchlist so you know right where to look for the strongest candidates. Subscribe now! http://www.optionssuccess.com/
Market Commentary - Yesterday, the market staged an impressive rally after ADP reported its strongest private sector job growth – ever. Analysts were expecting 100,000 new jobs and 300,000 were added in December. Private sector employment is the key to a sustained economic recovery.
Analysts scrambled to revise their expectations for Friday’s Unemployment Report. Most have bumped their projections up by 40,000 and anything less than 180,000 will be viewed negatively. Initial jobless claims have been dropping consistently and the four-week moving average is declining. This bodes well for tomorrow’s number. Seasonal adjustments to initial jobless claims made the number look better last week and that was reversed this morning. All told, the number is encouraging and we should see decent job growth tomorrow.
Last week, Chicago PMI jumped dramatically. That pop in manufacturing was supported by a better-than-expected ISM manufacturing number and stronger factory orders this week. Yesterday, ISM services also beat expectations. Retail sales, consumer sentiment, GDP and durable goods orders have all improved and economic activity is rebounding.
The FOMC minutes revealed that the Fed is steadfast in its commitment to quantitative easing. It feels employment conditions are tenuous, housing is poor and inflation is benign. The safety net of lower interest rates is also adding to investor confidence.
The economy will benefit from lower taxation. Republicans and Democrats agreed to extend the Bush tax credits and to lower payroll taxes. With more money in their pockets, Americans will spend. More than two thirds of our economy is dependent on consumption.
Holiday sales have been strong and earnings should be good. We are two weeks away from the beginning of earnings season and stocks typically rally into the announcements.
January is typically a bullish month. This is the third year of a presidential term and that has also been bullish historically.
Last weekend, China released its PMI. It declined slightly to 53.9, but that was anticipated. China has raised bank reserve requirements and it recently bumped interest rates up a quarter-point. These measures have barely slowed their runaway economy.
The credit crisis in Europe is not likely to impact the market for at least a month. The ECB has plenty of money in its coffers to support bond auctions and China said that they will buy Spanish debt. In the absence of a credit crisis, the market will rally.
Stock prices look a little tired, but I do not see them declining much. Money is rotating out of bonds and gold as investors gain confidence. Asset Managers are waiting for a pullback, but I don’t believe we will see one after yesterday’s strong employment number. Stocks should continue to grind higher as long as European interest rates stabilize.
If tomorrow’s Unemployment Report shows strong private sector job growth then buy in the money call options. Positions should still be relatively small. The key is to hit singles on the way up and so you don’t get blindsided by a selloff in Europe. We will be watching those auctions very closely.
We've been finding excellent opportunities on both sides of the market making it easy to carry both long and short positions--in this market it's important to be able to profit in either direction. I recommend a weighting favoring the upside by a margin of 3:1 to take advantage of the trend but still allowing your shorts to provide a nice hedge. In some cases (like ZUMZ), your hedges will make money as the market moves higher.
Trade well,
Pete
Important Note: Options Success provides two high-probability stock set-ups every day the market is open but DOES NOT provide specific buy or sell recommendations relating to the options on those stocks--the specific option, strike price, month of expiration and other decisions are made by each trader individually based on the strategies they've selected---customer feedback shows the most successful subscribers use the strategy guidelines suggested in our Options Success Trading Package.
If you have not already purchased the Options Success trading package and signed up for our daily stock picks we highly recommend you do so (your options account will thank you!) Click on this link to get started http://www.cashflowheaven.com/os
.
Monday, January 3, 2011
This Week We're Knocking Down a 16% Return with a 90% Probability of Success!
In a recent radio interview, one of the world’s biggest bond fund managers said that the “old normal” of growth from 6% - 7% per year has gone away for good and the “new normal” is going to be about half of what it once was.
Fortunately we don't have to accept that view.
Today’s technological advances along with the products that exchanges currently offer, make the “old normal” very achievable; not just per year but per month and if the conditions are right – per week. For those subscribers who are determined to become craftsman in the art of spread trading, these types of monthly returns are not only possible – they are our “new normal”.
February
• 10.62% - 16.28% Return on Investment, 90.25% - 90.32% Probability of Win.
• 12.61% - 13.12% Return on Investment, 88.31% - 88.92% Probability of Win.
The Markets and How They Affect Us
With record earnings and an improving global economy, U.S. stocks are defying the new normal of below-average returns. There were several warnings back in 2009 that suggested returns would lag behind historical averages because of government budget deficits and increased regulations. But as investors look back at 2010, they’ve witnessed the S&P 500 gain 13% marking the biggest rally since 1955. For the moment, most investors are beginning to believe that economic growth is sustainable and current sentiment is that it will probably continue well into 2011. The S&P 500 closed at 1,257.64 last week - the largest December rally since 1991 while the Dow Jones Industrial Average closed at 11,577.51 – a yearly increase of about 11%.
At the end of the 3rd quarter, investors were caught off-guard as they watched stocks rally after the Federal Reserve pledged to buy $600 billion in Treasuries to stimulate the economy. But by doing so, many long-term investors switched to bearishness citing that all we’re doing is just kicking the debt can down the road. This is a valid concern - the Fed printing more money is not the way to long term growth and prosperity. It’s not a question of if inflation and interest rates rise but more a matter of how much and how fast. Fortunately, for us options traders, there is an answer to every market direction that allows us to remain profitable even when troubles reverse the current advance.
U.S. GDP grew at 2.8% in 2010 but is forecasted to slow to 2.6% in 2011 and then back up again to 3.2% in 2012. Employers added 140,000 jobs last month; an increase of 39,000 from the previous month. The Labor Department will release it payrolls report this Friday with the expectation that the unemployment rate will drop to 9.7%. Even with this expected drop, there are still some very big questions out there regarding the sustainability of economic growth as housing, lending and, of course, jobs have yet to fully recover.
The combination of an economic recovery coupled with consumer sentiment suggests that even the most economically sensitive or cyclical sectors should perform their best this year. Corporate data is showing an increasingly positive trend. As such, the benchmark measure of using S&P 500 options to hedge losses, the VIX, dropped to 17.75 from 2010’s high of 45.79 back in May.
However, treasuries also rose as the 9.8% unemployment rate, record low inflation and the Euro-nation’s sovereign-debt crisis continues to weigh heavy on investor’s minds. The bond market returned 5.9% in 2010 after losing 3.7% in 2009. Although the recovery didn’t happen as quickly as people had hoped, economic sentiment is now hovering at multi-year highs. Quantitative easing has been effective in stimulating both the economy and inflation--and how that will affect us going forward is still a big unanswered question.
What are the Secrets of the Week?
With the New Year upon us, the majority of traders and volume will return this week and we’ll be joining the fray with two new plays – one on an equity and the other on an ETF---so let’s get started...
You can get in on this week's trades along with two new high-probability trades per week by clicking here now: http://www.cashflowheaven.com/ws
Stack the Deck on Every Trade,
Robert
To all our subscribers, God Bless and have an awesome trading week!
Fortunately we don't have to accept that view.
Today’s technological advances along with the products that exchanges currently offer, make the “old normal” very achievable; not just per year but per month and if the conditions are right – per week. For those subscribers who are determined to become craftsman in the art of spread trading, these types of monthly returns are not only possible – they are our “new normal”.
February
• 10.62% - 16.28% Return on Investment, 90.25% - 90.32% Probability of Win.
• 12.61% - 13.12% Return on Investment, 88.31% - 88.92% Probability of Win.
The Markets and How They Affect Us
With record earnings and an improving global economy, U.S. stocks are defying the new normal of below-average returns. There were several warnings back in 2009 that suggested returns would lag behind historical averages because of government budget deficits and increased regulations. But as investors look back at 2010, they’ve witnessed the S&P 500 gain 13% marking the biggest rally since 1955. For the moment, most investors are beginning to believe that economic growth is sustainable and current sentiment is that it will probably continue well into 2011. The S&P 500 closed at 1,257.64 last week - the largest December rally since 1991 while the Dow Jones Industrial Average closed at 11,577.51 – a yearly increase of about 11%.
At the end of the 3rd quarter, investors were caught off-guard as they watched stocks rally after the Federal Reserve pledged to buy $600 billion in Treasuries to stimulate the economy. But by doing so, many long-term investors switched to bearishness citing that all we’re doing is just kicking the debt can down the road. This is a valid concern - the Fed printing more money is not the way to long term growth and prosperity. It’s not a question of if inflation and interest rates rise but more a matter of how much and how fast. Fortunately, for us options traders, there is an answer to every market direction that allows us to remain profitable even when troubles reverse the current advance.
U.S. GDP grew at 2.8% in 2010 but is forecasted to slow to 2.6% in 2011 and then back up again to 3.2% in 2012. Employers added 140,000 jobs last month; an increase of 39,000 from the previous month. The Labor Department will release it payrolls report this Friday with the expectation that the unemployment rate will drop to 9.7%. Even with this expected drop, there are still some very big questions out there regarding the sustainability of economic growth as housing, lending and, of course, jobs have yet to fully recover.
The combination of an economic recovery coupled with consumer sentiment suggests that even the most economically sensitive or cyclical sectors should perform their best this year. Corporate data is showing an increasingly positive trend. As such, the benchmark measure of using S&P 500 options to hedge losses, the VIX, dropped to 17.75 from 2010’s high of 45.79 back in May.
However, treasuries also rose as the 9.8% unemployment rate, record low inflation and the Euro-nation’s sovereign-debt crisis continues to weigh heavy on investor’s minds. The bond market returned 5.9% in 2010 after losing 3.7% in 2009. Although the recovery didn’t happen as quickly as people had hoped, economic sentiment is now hovering at multi-year highs. Quantitative easing has been effective in stimulating both the economy and inflation--and how that will affect us going forward is still a big unanswered question.
What are the Secrets of the Week?
With the New Year upon us, the majority of traders and volume will return this week and we’ll be joining the fray with two new plays – one on an equity and the other on an ETF---so let’s get started...
You can get in on this week's trades along with two new high-probability trades per week by clicking here now: http://www.cashflowheaven.com/ws
Stack the Deck on Every Trade,
Robert
To all our subscribers, God Bless and have an awesome trading week!
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
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
Monday, December 27, 2010
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...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
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...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
Monday, December 20, 2010
This Week We're Knocking Down a 18% Return with an 89% Probability of Success!
As the U.S. economy continues its recovery, there’s a renewed sense of optimism during this holiday season. However, the markets are becoming increasingly complacent so be cautiously optimistic on bullish directional plays as we should expect to see more bad news coming out of the euro-nations in the coming months.
With the VIX dropping 8.5% to 16.11 this week, the cost of using options as insurance against the S&P 500 continues its decline and is now down from this year’s earlier high of 45.79 back in May. As a famous investor once said, “Be fearful when others are greedy and be greedy when others are fearful.” Regardless of sentiment or market direction, subscribers of “the Winning Secret” never give the Grinch a chance to ruin their holiday season. For this week, we’re looking at three great plays to start off the New Year:
For February:
• 88.95% - 89.16% probability of win, 15.74% - 17.65% return on investment.
• 87.96% - 88.87% probability of win, 12.87% - 13.90% return on investment.
For January:
• 90.24% - 88.38% probability of win, 8.70% - 13.64% return on investment.
The Markets and How They Affect Us
On Friday’s close, the U.S. stock market gained for a 3rd straight week, sending the S&P 500 to a two-year high, as better-than-estimated data on retail, manufacturing and housing boosted economic confidence.
The S&P 500 rose 0.3% to 1,243.91, finishing a 3-week rally which had been the longest run since Nov. 5th. The Dow also gained 81.59 points, 0.7%, to finish at 11,491.91. With strong corporate earnings, there is a renewed sense of optimism driven by the expectation that profits will continue to be strong.
As the U.S. recovery continues, investors may see growth between 3 - 3.5% next year. The economy grew at an annualized pace of 2.5% during the 3rd quarter - the U.S. economy definitely has some momentum building.
Overseas, there is growing concern that Europe’s debt crisis is worsening as Ireland’s credit rating was reduced due to declining financial strength and the cost associated with bailing out their lenders. Additionally, six Greek banks are currently under review for a possible downgrade a day after the country’s bond rating was put on a watch for a possible reduction.
Finally, Visa and MasterCard, the world’s two largest credit card companies, fell 17% and 13% after the Fed’s proposal on new rules that would offer to cut debit-card transaction fees by 84%; thereby, significantly impacting their business model.
What are the Secrets of the Week?
We have three plays for the week, two on equities and one on an ETF so let’s get started.
You can get in on this week's trades along with two new high-probability trades per week by clicking here now.
Stack the Deck on Every Trade,
Robert
With the VIX dropping 8.5% to 16.11 this week, the cost of using options as insurance against the S&P 500 continues its decline and is now down from this year’s earlier high of 45.79 back in May. As a famous investor once said, “Be fearful when others are greedy and be greedy when others are fearful.” Regardless of sentiment or market direction, subscribers of “the Winning Secret” never give the Grinch a chance to ruin their holiday season. For this week, we’re looking at three great plays to start off the New Year:
For February:
• 88.95% - 89.16% probability of win, 15.74% - 17.65% return on investment.
• 87.96% - 88.87% probability of win, 12.87% - 13.90% return on investment.
For January:
• 90.24% - 88.38% probability of win, 8.70% - 13.64% return on investment.
The Markets and How They Affect Us
On Friday’s close, the U.S. stock market gained for a 3rd straight week, sending the S&P 500 to a two-year high, as better-than-estimated data on retail, manufacturing and housing boosted economic confidence.
The S&P 500 rose 0.3% to 1,243.91, finishing a 3-week rally which had been the longest run since Nov. 5th. The Dow also gained 81.59 points, 0.7%, to finish at 11,491.91. With strong corporate earnings, there is a renewed sense of optimism driven by the expectation that profits will continue to be strong.
As the U.S. recovery continues, investors may see growth between 3 - 3.5% next year. The economy grew at an annualized pace of 2.5% during the 3rd quarter - the U.S. economy definitely has some momentum building.
Overseas, there is growing concern that Europe’s debt crisis is worsening as Ireland’s credit rating was reduced due to declining financial strength and the cost associated with bailing out their lenders. Additionally, six Greek banks are currently under review for a possible downgrade a day after the country’s bond rating was put on a watch for a possible reduction.
Finally, Visa and MasterCard, the world’s two largest credit card companies, fell 17% and 13% after the Fed’s proposal on new rules that would offer to cut debit-card transaction fees by 84%; thereby, significantly impacting their business model.
What are the Secrets of the Week?
We have three plays for the week, two on equities and one on an ETF so let’s get started.
You can get in on this week's trades along with two new high-probability trades per week by clicking here now.
Stack the Deck on Every Trade,
Robert
UPS SPIKED HIGHER THURSDAY THEN DROPPED FRIDAY STOPPING US OUT OF OUR JAN 72.50 CALLS AT A SWEET FIFTY-SIX PERCENT PROFIT!
The volatility of this past week did our current positions a world of good..
UPS SPIKED HIGHER THURSDAY THEN DROPPED FRIDAY STOPPING US OUT OF OUR JAN 72.50 CALLS AT A SWEET FIFTY-SIX PERCENT PROFIT!
PLUS MATTEL (MAT) SPIKED HIGHER RIGHT AS WE ENTERED OUR SELL ORDERS FOR A GENEROUS SIXTY-SEVEN PERCENT WINNER!
AND OUR OPEN PLAY ON RESEARCH IN MOTION (RIMM) IS SHOWING A NICE THIRTY-FIVE PERCENT OPEN PROFIT AFTER FRIDAY'S EXPIRATION!
It was a good week and by the looks of things it's going to get better. Our sold December options on RIMM expired worthless Friday exactly as we hoped--and now we own both the January puts and calls for a fraction of their current worth.
Now as the markets wind down toward Christmas are there still opportunities? You bet there are--and we can start by taking a good look at...
WHICH WAY THIS MARKET IS HEADED
The SP-500 traded mostly sideways this past week but with a slight upward bias. The volatility seems to have left this market as the index only varied by about 6 points--extremely unusual for a quadruple witching Friday. The VIX is less than a dollar from its yearly low closing Friday at 16.11.
The Nasdaq spiked to a new intraday high not seen since the end of 2007. This index looks bullish as well but at these lofty levels we could easily see a correction in January.
The markets typically trade higher right through the new year and then swoon going into February--something to keep in mind with new bullish positions as the markets edge higher.
There are reasons the markets are edging higher and we've seen some of them this past week. The Conference Board index of leading economic indicators rose by a very sharp +1.1 points for November. That was the biggest gain since March. Nine of the survey's ten components increased (real estate being the obvious exception).
The internal components point to a 3.0% rate of GDP growth in Q4. The odds of a double dip recession are decreasing every time a new positive economic report is released.
Hiring is improving at least on a temporary basis and it is expected to accelerate in the spring of 2011. Jobless Claims declined only slightly last week but it was enough to push the four-week moving average to 423,000---the lowest level in two years.
The headline number on the Philly Fed Manufacturing Survey for December rose to 24.3 from 22.5 in November. That may not sound like a big gain but the consensus estimates were for a decline to 15.0. Compared to an expected drop it was a great number---the highest level for the index since 2005.
The tax deal signed on Friday is also bullish as it should improve employment fairly quickly because of the accelerated write offs for business. The passing of this bill should remove one more reason for worry from the markets with a tax freeze for the next two years and some additional benefits for employers.
For next week the only material report will be the final GDP revision for Q3 on Wednesday---estimates are for a small rise to +2.6% growth.
The positives for this market are improving economics and a new flood of money still trying to find a home in every asset available (with the obvious exception of real estate). Stocks are not the only assets rising--copper, gold, silver, food and oil prices are all hovering at multi-year highs. The uptrend in almost every asset class within a still tepid economy relates more this new flood of dollars and their declining buying power than increased demand.
Unfortunately all the money printing and new debt is going to put a lid on the stock market at some point. As interest rates rise money will flow from stocks to bonds. And interest rates have been rising--and in spite of the Fed trying to keep rates low they will continue to rise.
Two-year Treasury yields have doubled in 29 trading days. Five-year yields have surged 102 basis points, or 1.02 percentage points, while 10-year yields just hit a seven-month high. What's more, thirty-year municipal bond yields soared to a 16-month high, and thirty-year mortgage rates jumped to the highest since the tail end of the spring home buying season.
Plus inflation is rising in spite of what the official government reports say. Since the first of this month the price of corn is up more than 3 percent, coffee is up more than 8 percent, sugar is up 8.49 percent, oats are up nearly 6 percent, while cotton prices are up more than 16 percent--in less than a month. It's hard to imagine what they'll be in a year.
The problem is these trends are not going to reverse--the fundamental facts tell us they are going to accelerate. So we've got a stock market trending higher with debt, inflation and interest rates massing to kill the rally--the question is...
HOW DO WE MAKE MONEY ON IT?
The key in an uncertain market like this one is to set yourself up to profit no matter which way stocks go. With volatility hovering toward its lows for the year we can get in on 'both ways' trades for less than ever giving us a very low profit threshold.
Our first play is a 'both ways' position on a big box retailer that just formed a horizontal wedge patter famous for predicting a big move--one way or the other. We'll be setting ourselves up to profit on that move first thing Monday!
Our next play is also a 'both ways' trade on a company with great growth and earnings in the past--and an earnings event coming up in the near future. Whether or not traders like their earning is immaterial because we'll be set up to profit in both directions on some very cheap options!
We've got two great play set-ups on a market ready to rock--so let's get going...
For more information on everything you receive with your Pearly Gates subscription click on www.cashflowheaven.com/pg
UPS SPIKED HIGHER THURSDAY THEN DROPPED FRIDAY STOPPING US OUT OF OUR JAN 72.50 CALLS AT A SWEET FIFTY-SIX PERCENT PROFIT!
PLUS MATTEL (MAT) SPIKED HIGHER RIGHT AS WE ENTERED OUR SELL ORDERS FOR A GENEROUS SIXTY-SEVEN PERCENT WINNER!
AND OUR OPEN PLAY ON RESEARCH IN MOTION (RIMM) IS SHOWING A NICE THIRTY-FIVE PERCENT OPEN PROFIT AFTER FRIDAY'S EXPIRATION!
It was a good week and by the looks of things it's going to get better. Our sold December options on RIMM expired worthless Friday exactly as we hoped--and now we own both the January puts and calls for a fraction of their current worth.
Now as the markets wind down toward Christmas are there still opportunities? You bet there are--and we can start by taking a good look at...
WHICH WAY THIS MARKET IS HEADED
The SP-500 traded mostly sideways this past week but with a slight upward bias. The volatility seems to have left this market as the index only varied by about 6 points--extremely unusual for a quadruple witching Friday. The VIX is less than a dollar from its yearly low closing Friday at 16.11.
The Nasdaq spiked to a new intraday high not seen since the end of 2007. This index looks bullish as well but at these lofty levels we could easily see a correction in January.
The markets typically trade higher right through the new year and then swoon going into February--something to keep in mind with new bullish positions as the markets edge higher.
There are reasons the markets are edging higher and we've seen some of them this past week. The Conference Board index of leading economic indicators rose by a very sharp +1.1 points for November. That was the biggest gain since March. Nine of the survey's ten components increased (real estate being the obvious exception).
The internal components point to a 3.0% rate of GDP growth in Q4. The odds of a double dip recession are decreasing every time a new positive economic report is released.
Hiring is improving at least on a temporary basis and it is expected to accelerate in the spring of 2011. Jobless Claims declined only slightly last week but it was enough to push the four-week moving average to 423,000---the lowest level in two years.
The headline number on the Philly Fed Manufacturing Survey for December rose to 24.3 from 22.5 in November. That may not sound like a big gain but the consensus estimates were for a decline to 15.0. Compared to an expected drop it was a great number---the highest level for the index since 2005.
The tax deal signed on Friday is also bullish as it should improve employment fairly quickly because of the accelerated write offs for business. The passing of this bill should remove one more reason for worry from the markets with a tax freeze for the next two years and some additional benefits for employers.
For next week the only material report will be the final GDP revision for Q3 on Wednesday---estimates are for a small rise to +2.6% growth.
The positives for this market are improving economics and a new flood of money still trying to find a home in every asset available (with the obvious exception of real estate). Stocks are not the only assets rising--copper, gold, silver, food and oil prices are all hovering at multi-year highs. The uptrend in almost every asset class within a still tepid economy relates more this new flood of dollars and their declining buying power than increased demand.
Unfortunately all the money printing and new debt is going to put a lid on the stock market at some point. As interest rates rise money will flow from stocks to bonds. And interest rates have been rising--and in spite of the Fed trying to keep rates low they will continue to rise.
Two-year Treasury yields have doubled in 29 trading days. Five-year yields have surged 102 basis points, or 1.02 percentage points, while 10-year yields just hit a seven-month high. What's more, thirty-year municipal bond yields soared to a 16-month high, and thirty-year mortgage rates jumped to the highest since the tail end of the spring home buying season.
Plus inflation is rising in spite of what the official government reports say. Since the first of this month the price of corn is up more than 3 percent, coffee is up more than 8 percent, sugar is up 8.49 percent, oats are up nearly 6 percent, while cotton prices are up more than 16 percent--in less than a month. It's hard to imagine what they'll be in a year.
The problem is these trends are not going to reverse--the fundamental facts tell us they are going to accelerate. So we've got a stock market trending higher with debt, inflation and interest rates massing to kill the rally--the question is...
HOW DO WE MAKE MONEY ON IT?
The key in an uncertain market like this one is to set yourself up to profit no matter which way stocks go. With volatility hovering toward its lows for the year we can get in on 'both ways' trades for less than ever giving us a very low profit threshold.
Our first play is a 'both ways' position on a big box retailer that just formed a horizontal wedge patter famous for predicting a big move--one way or the other. We'll be setting ourselves up to profit on that move first thing Monday!
Our next play is also a 'both ways' trade on a company with great growth and earnings in the past--and an earnings event coming up in the near future. Whether or not traders like their earning is immaterial because we'll be set up to profit in both directions on some very cheap options!
We've got two great play set-ups on a market ready to rock--so let's get going...
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