NEWSLETTERS & RECOMMENDATIONS - January 17, 2011

Dear Friends and Fellow Traders,

The market was given every opportunity to go down and didn't. In fact the market rallied into the close these last 6 days - that's bullish price action. The market went through some heavy resistance and closed near 1290. The next target is 1300 and maybe 1350. Like last week the crowd is still looking for a correction that doesn't come. As long as the Fed pumps money into the market why should the market come down much?

Believe me we will have a correction but most investors continue to find reasons to get long stocks and sell bonds. All I know is buying protection is cheap with the VIX in the teens but think of all the money we have saved as put after put expires worthless. I trust Mr. Market will tip his hand like last April and we will get long puts when the time is better. For those of you who don't remember I recommended a put spread that returned 9X in only 3 weeks.

This is the time of year I most look forward to reading my Barron's. I love the Roundtable. Here I can review the thoughts and picks from some of the best and brightest investment managers in the world. Again Marc Faber, better known as "Dr. Doom soundly, trounces his peers for the second year in a row. Although Felix Zulauf ran step-for-step with him last year. This year it wasn't even close.

Faber had a total of 11 picks. He had 3 doubles and 2 very small losers. His average idea was up over 40%. Gabelli had the only other double due to a takeover. The rest I figure, after a quick study, performed only slightly better than the market.

I've followed Dr. Doom for almost 10 years. He scares the hell out of me with him ultimate doomsday scenario but that's for another day. This year he's looking for the market to move as it did in 2010 with a down-up move of 20%. I don't see the down being that much but I like the up. Faber continues to note: "The central bankers of the world are being held hostage to asset markets. They will not let the asset market drop significantly. They would rather let their currencies go. Worldwide they will print money.

In such an environment, I love to corporate bonds, equities, global real estate, precious metals and commodities. I don't want to be in cash and government bonds in the long run. The U.S. market has almost doubled since March 6, 2009. A correction is overdue. Then we will have the second leg of a bull market. In the third year of a presidential cycle, you want to be in the most speculative stocks. As we approach the 2012 election, the Fed is going to print like hell. I am bearish about everything but in my bearishness, I'll be better off in stocks than government bonds." Barron's asks: "So you're bearish, but you're not." Faber replies: "I'm very bearish about the ultimate outcome."

I'll continue with a few more interesting thoughts. Oscar Schafer hit the nail on the head with his comment on employment - "Let me throw a few numbers out. In the 1970s, the US had 20 million manufacturing jobs with a population of 220 million. Now we are down to less than 12 million manufacturing jobs with a population of 320 million. Manufacturing is a little different from science, but the point is it's much cheaper to manufacture stuff in China and India. That's not going to change, and that's why unemployment will stay high."

Education is the key he feels and we're falling further and further behind the curve as the best and brightest students go home. I've written about this a few times in the past. We must do a better job here but after reading an opinion piece in the WSJ yesterday I'm convinced we are failing. It cited Detroit's closing a third of the city’s schools to pay the salaries of their teachers. Nice work if you can get it. Go unions for now. Things are a changing in the future.

Fred Hickey writes, "We have seen tremendous speculation and exuberance in the stock market, as evidenced by Investors Intelligence and other sentiment indicators. Not so in gold; the Hulbert Gold newsletter sentiment index is down but the gold stock rally has entered its speculative phase. The GDXJ (Market Vectors Junior Gold Miners exchange traded fund) was up twice as much as the GDX (Market Vectors Gold Miners) last year. Mining stocks are undervalued."

I have mentioned in the Chat Room a few months ago after listening to the CEO of Newmont Mining (NEM) on CNBC I went out and sold a ton of puts on the GDXJ Index. The index prompted rallied over 10 points to 44 but I fell asleep and didn't sell the puts then. So now I'm a few points OTM and if these puts don't expire worthless on Friday I will sell down and over. I will be a large seller of these Index puts on any larger gold weakness.

This is the first time ever in my 40+ years of investing that I've ever wanted to own shares in gold miners for future takeovers. I still do not want to own gold. Right now a gold miner in today’s cost environment can earn over $500 a ounce profit. Therefore I believe every Junior Gold Miner with valuable assets is a potential takeover sooner than later. The shares with today’s gold price and higher can ton money like never before. Hence takeovers are coming.

I came back from my vacation and what did I do first? I went out and put together all the information I could find on Junior Gold Miners. I've identified at least one that could increase 3-4 Xs over the next 2 years. The beauty is that it has options and a huge catalyst to help make that happen. This could be possibly my next YHOO/HUN-type trade where you will not have to put up any money if you have equity in your account. We all know how well HUN turned out. In the last 10 months we have earned over $10,000 dollars for every 1000 shares of HUN we bought @ $8.50. I just put out an Alert Email with a related strategy to roll-up and over on the call write part to extend the gains and make the trade into a LTCG (AKA long-term capital gain) versus ordinary income. NET Alert investors stay tune. I have some more checking to do before I recommend the idea.

When Barron's asked Hickey about the stock market he replied, "If the Fed continues printing, the market will go higher. It will continue printing because the economy probably would collapse if it didn't. The stock market could go up 10% this year if it continues."

Lastly, I liked what Gabelli had to say about our markets. He states, "Consultants have been advising corporate pension and endowment funds to shift money out of domestic equities into emerging markets and away from active managers and into index and hedge funds. These funds have shifted so far away from domestic equities that an air pocket has been created in valuations of high-quality US stocks. There are significant bargains. By the end of the year, the market will be up 5% to 10%. There will be more deals.”

I covered the deal or take over part last week but I believe that the U.S. market, coupled with a stronger economy, low inflation, low rates and a better dollar will see more money shifted back to U.S. stocks. These are some of the reasons that I fail to see a significant correction either this year or next. I was wrong about last year being a stock picker year but I believe 2011-12 will be more so. I continue to see a grind higher.

BTX Update:
I commented my brains out about BTX. I expect better news to unfold this year and the stock to be much higher after BTX absorbs the recent body blows. Only time is needed to see the price recover. This doesn't mean BTX can't go lower. It can. Don't get sore buy more. Keep the faith.

Trade of the Week:
Thursday night in the Chat room I mentioned another range day like Thursday and we'll ton dollars with cheap options Friday. Overnight the market slightly broke the lows of Thursday and I noted in the Chat Room Friday before the open we could buy Weekly 575 ITM calls under $2.00 if the market opened lower. These calls closed over $3.00. The market never opened near Thursday lows, the calls opened at $2.05 and the market never looked back. I never considered the 580 OTM at $0.20 because the market had to make new highs for these calls to work. Sad to say these calls closed $2.35, a 10 bagger!! While the ITMs closed over $7.00.  Suffice it to say I never had a chance to send an Alert Email call buy.

Sometime after 11:00 I sent an Alert Email to buy the 580 Ws ATM puts near $1.00 average-in and hedge. The calls were out of the question. The only way to get long was to buy the cheaper puts and go long the E-minis then hope the market would fail and we'd have fully paid for puts to catch any decline from the 1285 or so level. There were at least 4 opportunities to hedge but for very little - $75 per contract profit. Still hedging more than paid for the puts.

It became apparent by 1:00 PM that we were coming out the top of the range for the week. We were making higher highs and lows all day. Hedging was tough. I sent an Alert Email to pile into the puts in size near $0.30 and go long at least 50% E-minis. In other words take a "simultaneous hedge trade" looking for a breakout up. I suggested 100 long puts and long at least 50 E-minis in the Chat Room. Before 3:30 I sent another Alert Email to close the position. The puts would no longer serve as downside protection and were going out worthless. However, on the other side of the trade, the E-minis were up 4 points. The net result was that we lost over $3,000 on 100 puts and made over $10,000 on 50 E-minis (up 4 points X 50 contracts = $10,000)! Again nice work if you can get it.  See Friday's (2011-01-14) 5-minute chart.

As always keep those cards and letter coming. I read every one of them.

Good trading,

Stan Moore
702.558.1814