NEWSLETTERS & RECOMMENDATIONS - January 10, 2011

Dear Friends and Fellow Traders,

It's great to be back after taking time off. Still I was never far from my phone, computer or the market. I made over 40 calls a week and still found time to send at least 3-4 Alert Emails to keep my subscribers up-to-date while on vacation.

We will finally see a stronger economic recovery than I previously thought. I believe consumers will spend more as de-leveraging slows and this could lead to growth outside of fiscal and monetary policy. I also see earnings rising but at much slower rates as year-to-year comparisons become harder in 2011. I don't see inflation as a problem yet.

Investors have been putting massive amount of funds into bonds these last 2 years. I do believe we have seen the end of the great, almost 30-year bull market in bonds. This means $s will now flow in equities. However, since mid-December investors have pulled out over $4.7 billion from bond funds and returned over $6.5 billion into equities which only make sense in an era of rising rates. I see QE2 ending and no 4, 5 or 6 coming.

Right now the "Crowd" and the bears are calling for a correction. This "correction trade" is overcrowded. The market had every reason to correct this week and didn't. On the technical side, I need to see at least 2 or maybe 3 market selloffs in a row to convince me we can even reach the 50 day moving average near 1121-2. Still that is only is a 5% decline.

Why expect a correction? Well, the S&P 500 Index is up over 6.7% for December and 10.8% for the 4th quarter. This year-end rally pushed the Index to its highest level since September 2008 just prior to the Lehman Brothers collapse. It is important to note that only 21% of mutual funds outperformed the S&P Index. There is a lot of catching up to do there this year.

Quite possibly, the strong performance also reflected a shift in the Obama camp to a more investment-friendly environment. I think Obama has his sights clearly focused on another 6 years in the Oval Office. He really likes his job. Why else would he pick Daley as his Chief of Staff. We all remember he almost put Gore in the White House.

In general, after the worst depression since the 1930s, I remain overall bullish on equities these next few years. There has been a steady trend of improvement in economic conditions and corporate profits. Looking in to my crystal ball for 2011 I see corporate stock buy backs likely hitting near $350 billion and another $350 billion mostly in cash acquisitions as corporate confidence grows. This coupled with a stronger dollar means even overseas investors may pump even more billions into our stock market. I find it hard to make a bearish case with these inflows. Remember, we are in a seasonally strong time of year.

Lastly, we are entering the 3rd year of a presidential cycle.  The Kaufman Report in this week's Barrons tells us that since 1939, the DJIA hasn't had a single down year-three with the average gain being 16.6%. Furthermore, based on the S&P 500 since 1914, from the low of year to the high of year three, the average move has been 49.2%. Through the past seven presidential cycles since 1982, the average low-to-high move has been 50%. From the 2010 low of 1010, this would equate to a move to 1500 sometime in 2011. The Kaufman Report isn't forecasting that, just highlighting that it may be difficult to be bearish in the face of such strong historical patterns. I fully agree.

What can go wrong? Real estate gets much worst. It will but overall the market has discounted this negative. I don't even think a major disaster in Euro Land can hurt us much. China is buying billions of Euros to help there. Unemployment won't recover? That ship has sailed. B.B. has already told us not to expect a recovery in jobs for the next 4-5 years. Still we may get to a 9%unemployment rate this year. That helps. Job loss is structural not cyclical. Those manufacturing jobs are gone forever and will never return as a result of technology and globalization. But the overall the world economy benefits us in other ways. The biggest benefit comes with lower inflation as wages make up 50% of costs versus raw materials at 10%. Companies will be able to absorb these costs and make it up with top-line revenue growth.

Zachary Karabell writes in this week’s issue of Time magazine that other countries have seen many years of high unemployment go hand-in-hand with solid economic growth: Britain and West Germany in the mid-1980s, Australia in the early 1990s, Canada in the late 1990s and South Africa today. I might add Germany is continuing to carry Europe almost by itself today.

Further BTX thoughts
I sent out over 5 BTX Alert Emails these last 2 weeks. The early ones re-enforced my earlier call to sell some BTX over $9.00 and replace it with 2 BTX 10 strike calls. You retain all the upside and more while taking considerable risk and dollars off the table. (The common dropped almost $2.00 while your 10 strike call is down about a measly $0.25). BTX hit a high of $9.94 the last week of 2010. I wasn't surprised when the shorts came after BTX big time these last two weeks. There are over 3.5 million shares short. This is the highest number in over 10 years. It's also over 20% of BTX shares in the public hands. The shorts were bleeding. They may be down but were never out.

We saw the shorts take BTX down early last year from $5.00 to almost $3.00 in a few weeks. After BTX was included in the Russell 3000 in July at $7.01, it was only a short time later that BTX was trading in the low $4.00s. Remember, my Alert Email on the subject? “Don't get sore - buy more.” I've followed BTX going on 18 years and BTX has never earned a dime during this time. During that time the shorts and longs have lived and died at least a dozen times. I got caught once big time when President Bush killed all stem cells funding. BTX was almost bankrupt.

Today BTX is a very different company, one I didn't even recognize and I was a drug analyst for my 1st 5 years on Wall Street. If it weren't for Chris Cox writing in plain English none of us would understand today's BTX and its great future. I totally trust and believe everything Cox has written to date. He’s known Dr. West over 15 years and understands the future of stem cell tech better than almost anyone on the planet.

I want you to understand the shorts can buy and put out bogus research as the real deal which I feel is the current situation. No stem cell analyst worth his salt can tell me that without spending time with Dr. West that he can come out with a $2.00 price target on a company that appears to be in a position to dominate one of the fastest growing businesses in the known world. Teva, a major pharma company, was the first to put real $s into a BTX stem cell subsidiary. We'll know in time and I'm guessing we'll hear from Chris Cox again in the near future.

Time does not permit me to review the trade or trades of the past week. I will only say the early put trade Friday morning had the OTM put going from $0.70 to over $5.00. If that wasn't enough there was a call trade at the 30-minute 60% retest failure level from $0.70 that also closed near $3.50.

I will be back in full battle mode next week. BTX took a lot a time and effort keeping everyone up to date these past 2 weeks.

As for the procrastinators, there are only a few more days to take advantage of my Intraday Charts/Alert Emails discount package. Act now, save big and make more money trading my recommendations. Please call me if you have questions.

Good trading,

Stan Moore
702.558.1814