NEWSLETTERS & RECOMMENDATIONS - February 28, 2010

Stock and option trading is high risk and you can lose a great deal of money, maybe all, in the process. You agree and understand the risks involved and have made your own assessment of your personal risk tolerances. You agree to not hold NewEraTrader.com and/or anyone affiliated with this site liable for any losses that may result from the information provided. By submitting your membership form, you agree and fully understand that this site and its contents are not meant and were not developed to be viewed as trading advice or recommendations. You agree by viewing the contents of this site that you do so at your own discretion and that you will not hold accountable anyone affiliated with NewEraTrader.com for any losses or interpretations you may have. Past performance is no guarantee of future results.

NEWSLETTERS & RECOMMENDATIONS - February 15, 2010

Dear Friends and Fellow Traders,

From Barron's this week, “Brace yourself for the second wave - the wave of sovereign defaults that typically occurs a few years after a financial meltdown.” John Mauldin writes we are between "Dire and Disastrous" and "that Greece is a precursor of a new era of sovereign risk". Claims that the Euro could be headed for total collapse are particularly striking when they come from one of the oldest and largest French banks. In a note to investors, SocGen strategist Albert Edwards said, "My own view is that there is little ‘help’ that can be offered by the other Eurozone nations other than temporary confidence-giving ‘sticking plasters’ before the ultimate denouncement: the breakup of the Eurozone".

All this new news is very alarming because it came shortly after European Union promised "determined and coordinated" action to shore up Greece. This lack of action happens because I feel that these countries are constrained in what they can and cannot do. I further believe there will be no specific plan just verbal support hoping Greece will bite the fiscal bullet and rollover their debt shortly.

The real risk here is that if Greece defaults, the 3-4 largest European banks would be bankrupt and that starts a series of markdowns across other nation’s bank assets. This screams for more bailouts after more writedowns, mark-to-market and so on etc. Subprime will look like a blip on a radar screen compared to this potential global meltdown.

Normally, countries that are highly uncompetitive are able to slash interest rates and devalue their currencies to prop-up their economies. Does this sound familiar? It’s happening right before your eyes here. But this is not possible within the Euro, given its one-size-fits-all economic governance. The implication is that weak, peripheral Eurozone members will have to suffer years of painful deflation and tumbling living standards as well as Draconian budget cuts in order to adjust. Greece has promised to cut public spending $2.75 Billion and raise taxes $6.7 Billion. This can't happen. There will be blood in the streets. Can you just imagine if we tried that here? This monumental change would take a great leader and it isn't Obama or anyone else I know right now.

Harvard University Professor Martin Feldstein, a long-standing skeptic on the Euro on Friday, said, “The single currency isn't working because member governments have no incentive to keep their public debts under control. There's too much incentive for countries to run up big deficits as there's no feedback until a crisis.” We can only hope the above can't and won't be allowed to happen.  We can hope that this ends once and for all the march to total socialism in Europe. Governments can't spend their way to prosperity for very long without inflation or serious repercussions.

I recently saw an interview on TV with a city manger of a bankrupt town outside of San Francisco. When asked why he failed he answered I'm paying for three police forces. One is on duty the other two are retired. The US, states and municipalities have to break these union strangleholds once and for all. It won't be easy but it's absolutely necessary. However, where do jobs increase, employees get steady raises in pay and benefits while millions of other citizens are without raises, cuts in benefits or no jobs at all? Welcome to the new improved "Obamaland" where everyone is a Government employee. Gee but I thought socialism was on its way out. Not here.

We can only hope Obama gets the message before it's too late. I'm not hopeful. Looking ahead as far as the eye can see we are no different than any of those "PIIGS" in Europe. Congress just increased the national debt limit almost $2 trillion. Right now, the US spends only 9% of the budget on interest because rates are so low.  What happens when we try to inflate our way out by printing money?  Interest rates will rise substantially and consume say 20-30% our budget. I'm not sure. It's estimated that if interest rates rise to only 3% the entire Japanese budget is consumed by interest alone. Japan is Banko (a slang for bankruptcy)!

Summary:
The only solution I can see for us is to get "filthy rich" before this entire fiscal situation blows up in our face.  With wealth, we then have the freedom to live anywhere in the world we choose. Those countries that have sensible fiscal policies will be great places to reside. I'm still suggesting buying as much BTIM stock as you can and do all these weekly option trades in sizes you can afford to build your capital as rapidly as possible. I see trouble here as early as 2-3 years if not sooner.

A review of last week’s trades:
Again there were good option trades both Thursday and Friday. I noted on the Wednesday "C" chart that if the market retests the lows we buy calls. The S&Ps made a marginal low Thursday morning but because I was leaving for most of the day I did not put out an Alert Email call buy. In hindsight, I could have before I left because the S&Ps went almost straight up from $1.30 to $4.00.just before I returned. However, some of you did catch the long. Congrats!

Friday morning was expected to be more of the same trading range because Berkshire Hathaway (BKB.B) was joining the S&P at the close. This meant that $8 Billion of BKB.B's stock had to be bought and $8 Billion of the remaining 499 members stocks had to be sold. This can explain the lower S&P opening and the narrow sideways trading until the 12:30 PM high. Before the high was reached I put out an Alert Email suggesting we buy the 495W puts near $1.00. The puts hit $1.10 and rose to $3.10. I noted on the "B" (the 2:00 PM Intraday chart) intraday chart to sell some at the large Retest/Failure 60ID buy area or hedge.

On Friday afternoon, the market rallied again into 2:30 PM where a $300+ hedged profit could have been taken and additional puts purchased as low as $0.65. From here we started down. I sent another Alert Email to sell all puts into weakness. All puts could have been sold for at least a 3 bagger when the puts hit $2.45. I even suggested in the NET Chat Room that the very cheap fully-paid for puts were a great hedged long E-mini trade. Yes, you lost a $1.00 when the puts expired worthless but picked up over $400 per contract on the hedge. See the attached NET Money Chart 2010-02-12 or Friday "C" chart.

I noted in the Chat Room a long E-mini trade into 3:30 PM EOD low but not the calls. I thought the OTMs calls would expire worthless (and they did) while the ITM $3.00 calls were too expensive. These calls only closed at $5.00. The ITM calls were not our usual cheap Friday option trade. I had learned from CNBC after 3:00 PM that there was an imbalance of BKB.B sell orders of over 50 million shares or $3.5B. This imbalance meant that traders would have to cover over $3.5 B of the other 499 S&P shares sold short earlier and could spark a tradable rally. That's where the $400 hedged or E-mini long profit came from. These 2 puts trades could have earned a good NET trader over 5X on the puts and over $700 more in hedged profits per put contact! Trading like this could get you rich in a hurry starting with only 20 contracts and only 10-15 E-minis at a time.

A look ahead:
The EU meets Monday and Tuesday but I don't expect much. Meanwhile our manufacturing rebound probably accelerated into January adding evidence the US expansion continues without missing a beat, economists tell us. Still we have to see how the market reacts to this and inflation numbers later in the week. All the stocks I looked at for writing puts rallied so those ideas are still valid for another time if the market goes lower. I still believe we are going to trade in a 100 or so point S&P range until some geopolitical news breaks us out.

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

Good trading,

Stan Moore
702.267.0396

P.S. So what have we learned in 2,064 years?
"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance." – Cicero, 55 BC

Is Greece the proverbial canary in the fiscal Coal Mine?

xxxxxxxxxxxxxxxxx

Dear Friends and Fellow Traders,

From Barron's this week, “Brace yourself for the second wave - the wave of sovereign defaults that typically occurs a few years after a financial meltdown.” John Mauldin writes we are between "Dire and Disastrous" and "that Greece is a precursor of a new era of sovereign risk". Claims that the Euro could be headed for total collapse are particularly striking when they come from one of the oldest and largest French banks. In a note to investors, SocGen strategist Albert Edwards said, "My own view is that there is little ‘help’ that can be offered by the other Eurozone nations other than temporary confidence-giving ‘sticking plasters’ before the ultimate denouncement: the breakup of the Eurozone".

All this new news is very alarming because it came shortly after European Union promised "determined and coordinated" action to shore up Greece. This lack of action happens because I feel that these countries are constrained in what they can and cannot do. I further believe there will be no specific plan just verbal support hoping Greece will bite the fiscal bullet and rollover their debt shortly.

The real risk here is that if Greece defaults, the 3-4 largest European banks would be bankrupt and that starts a series of markdowns across other nation’s bank assets. This screams for more bailouts after more writedowns, mark-to-market and so on etc. Subprime will look like a blip on a radar screen compared to this potential global meltdown.

Normally, countries that are highly uncompetitive are able to slash interest rates and devalue their currencies to prop-up their economies. Does this sound familiar? It’s happening right before your eyes here. But this is not possible within the Euro, given its one-size-fits-all economic governance. The implication is that weak, peripheral Eurozone members will have to suffer years of painful deflation and tumbling living standards as well as Draconian budget cuts in order to adjust. Greece has promised to cut public spending $2.75 Billion and raise taxes $6.7 Billion. This can't happen. There will be blood in the streets. Can you just imagine if we tried that here? This monumental change would take a great leader and it isn't Obama or anyone else I know right now.

Harvard University Professor Martin Feldstein, a long-standing skeptic on the Euro on Friday, said, “The single currency isn't working because member governments have no incentive to keep their public debts under control. There's too much incentive for countries to run up big deficits as there's no feedback until a crisis.” We can only hope the above can't and won't be allowed to happen. We can hope that this ends once and for all the march to total socialism in Europe. Governments can't spend their way to prosperity for very long without inflation or serious repercussions.

I recently saw an interview on TV with a city manger of a bankrupt town outside of San Francisco. When asked why he failed he answered I'm paying for three police forces. One is on duty the other two are retired. The US, states and municipalities have to break these union strangleholds once and for all. It won't be easy but it's absolutely necessary. However, where do jobs increase, employees get steady raises in pay and benefits while millions of other citizens are without raises, cuts in benefits or no jobs at all? Welcome to the new improved "Obamaland" where everyone is a Government employee. Gee but I thought socialism was on its way out. Not here.

We can only hope Obama gets the message before it's too late. I'm not hopeful. Looking ahead as far as the eye can see we are no different than any of those "PIIGS" in Europe. Congress just increased the national debt limit almost $2 trillion. Right now, the US spends only 9% of the budget on interest because rates are so low. What happens when we try to inflate our way out by printing money? Interest rates will rise substantially and consume say 20-30% our budget. I'm not sure. It's estimated that if interest rates rise to only 3% the entire Japanese budget is consumed by interest alone. Japan is Banko (a slang for bankruptcy)!

Summary:

The only solution I can see for us is to get "filthy rich" before this entire fiscal situation blows up in our face. With wealth, we then have the freedom to live anywhere in the world we choose. Those countries that have sensible fiscal policies will be great places to reside. I'm still suggesting buying as much BTIM stock as you can and do all these weekly option trades in sizes you can afford to build your capital as rapidly as possible. I see trouble here as early as 2-3 years if not sooner.

A review of last week’s trades:

Again there were good option trades both Thursday and Friday. I noted on the Wednesday "C" chart that if the market retests the lows we buy calls. The S&Ps made a marginal low Thursday morning but because I was leaving for most of the day I did not put out an Alert Email call buy. In hindsight, I could have before I left because the S&Ps went almost straight up from $1.30 to $4.00.just before I returned. However, some of you did catch the long. Congrats!

Friday morning was expected to be more of the same trading range because Berkshire Hathaway (BKB.B) was joining the S&P at the close. This meant that $8 Billion of BKB.B's stock had to be bought and $8 Billion of the remaining 499 members stocks had to be sold. This can explain the lower S&P opening and the narrow sideways trading until the 12:30 PM high. Before the high was reached I put out an Alert Email suggesting we buy the 495W puts near $1.00. The puts hit $1.10 and rose to $3.10. I noted on the "B" (the 2:00 PM Intraday chart) intraday chart to sell some at the large Retest/Failure 60ID buy area or hedge.

On Friday afternoon, the market rallied again into 2:30 PM where a $300+ hedged profit could have been taken and additional puts purchased as low as $0.65. From here we started down. I sent another Alert Email to sell all puts into weakness. All puts could have been sold for at least a 3 bagger when the puts hit $2.45. I even suggested in the NET Chat Room that the very cheap fully-paid for puts were a great hedged long E-mini trade. Yes, you lost a $1.00 when the puts expired worthless but picked up over $400 per contract on the hedge. See the attached NET Money Chart 2010-02-12 or Friday "C" chart.

I noted in the Chat Room a long E-mini trade into 3:30 PM EOD low but not the calls. I thought the OTMs calls would expire worthless (and they did) while the ITM $3.00 calls were too expensive. These calls only closed at $5.00. The ITM calls were not our usual cheap Friday option trade. I had learned from CNBC after 3:00 PM that there was an imbalance of BKB.B sell orders of over 50 million shares or $3.5B. This imbalance meant that traders would have to cover over $3.5 B of the other 499 S&P shares sold short earlier and could spark a tradable rally. That's where the $400 hedged or E-mini long profit came from. The 2 puts trades could have earned a good NET trader over 5X on the puts and over $700 more in hedged profits per put contact. Trading like this could get you rich in a hurry starting with only 20 contracts and only 10-15 E-minis at a time.

A look ahead:

The EU meets Monday and Tuesday but I don't expect much. Meanwhile our manufacturing rebound probably accelerated into January adding evidence the US expansion continues without missing a beat, economists tell us. Still we have to see how the market reacts to this and inflation numbers later in the week. All the stocks I looked at for writing puts rallied so those ideas are still valid for another time if the market goes lower. I still believe we are going to trade in a 100 or so point S&P range until some geopolitical news breaks us out.

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

Good trading,

Stan Moore

702.267.0396

P.S. So what have we learned in 2,064 years?

"The budget should be balanced, the Treasury should be refilled, public debt should be reduced, the arrogance of officialdom should be tempered and controlled, and the assistance to foreign lands should be curtailed lest Rome become bankrupt. People must again learn to work, instead of living on public assistance." – Cicero, 55 BC

Stock and option trading is high risk and you can lose a great deal of money, maybe all, in the process. You agree and understand the risks involved and have made your own assessment of your personal risk tolerances. You agree to not hold NewEraTrader.com and/or anyone affiliated with this site liable for any losses that may result from the information provided. By submitting your membership form, you agree and fully understand that this site and its contents are not meant and were not developed to be viewed as trading advice or recommendations. You agree by viewing the contents of this site that you do so at your own discretion and that you will not hold accountable anyone affiliated with NewEraTrader.com for any losses or interpretations you may have. Past performance is no guarantee of future results.

Dear Friends and Fellow Traders,

Why do global investors pile into the US dollar and its bonds if the US is a complete financial mess? The same reason the UK is not under fire by the market (yet give it 6-9 more months). Ditto with Japan. These three nations have the ability to kick the can down the road, lowering our standard of living and effectively steal our money. It's called a printing press.

Right now it's the member states of the European Union that are in trouble. They do not have their own "in country" printing press anymore. So they face actual hard decisions. European bank stocks have fallen nearly 20% in weeks.

America and Japan are way to the far right of the European states at 100-200% debt to GDP and are happy to go the backdoor route rather than deal with the issues at hand. They are happy to print money. (On Jan 13, 2010 Kyle Bass of Haman Capital wrote this confirming article: Kyle Bass of Hayman Capital: Japan Defaults on Debt or Devalues in 3-4 Years; United States in 10 to 12.) Which is why the value of your dollar, over the long run, has been and will continue to be crushed in the future.

Furthermore, Bill Gross from PIMCO Advisors says, "We are Greece with a money tree". The US is a disaster and, aside from Greece etc., we are worse than all the "PIIGS" we are hand-wringing about. I think this is very important for all traders to understand.

As investors, here is the problem. This is not a one week or one month or even one year problem and will be hanging over us constantly. I've been discussing this currency crisis (specific to the US) since 2008 and before Obama became our President. I've been discussing the European issues since mid-2009. For many months this crisis did not matter one iota. But, as I like to say, "It matters only when it matters." Now it matters. Maybe after the IMF rescues Greece et al, the market will surge 5% overnight and we'll cheer! Problem solved! Then what? Then another decade of more sovereign debt issues - one country after another. This is a massive global headwind.

Markets around the world are only now recognizing that sovereign balance sheets in many advanced economies are now in play when it comes to broad positioning considerations. Just look what happened these last three weeks to the reflation trade as traders ran to cover USD shorts and sell commodities. Gold (a safe haven?) dropped over $175, oil fell nearly $10 and copper $0.50.

Now for the good news! The S&P nearly completed the 10% correction I anticipated. The 2:00 PM low was only 6 points from 1035, a 10% correction level, and only another 20-25 points from the 200 DMA on the daily chart. In addition, the Oscillator on the daily chart is oversold for the first time in 7 months.

NET traders know we get rallies of 50+ S&P points from retests of the 200 Day when we have not retraced back to this level for an extended period of time. Remember, only 6 months ago the S&P was 20% away from this average. We should also remember when I mentioned over 90% of all stocks were over their 50 DMAs. This 90% number serves as a good alert that the market is quite extended. Well, now only 34% of stocks are over their 50 DMA. Under 30% the market is now extended to the downside.

Soon, I will issue a new list of 3-5 stocks to our Alert Email subscriber list that I'm looking to sell naked ATM or ITM puts to create cheaper entry prices. I will then recommend selling calls into strength to further lessen any short term risk.

Trades of the week in review:
First a little background data. I am still too cautious when it comes to buying puts aggressively. I seem to have forgotten what I wrote in The Definitive Trading Bible. Generally according to NET trading methodology, when we are in strong down markets we sell in front of the resistance and at the actual resistance level versus selling at the number and behind the number in strong markets. So, in strong down markets, scale into options just a little lower. It's that simple!

Friday morning before the market opened I placed my scale-in put orders at resistance, 1067-70. I had my Alert Email ready to be sent. The market opened and traded to 1064 in one bar and the up was over and my orders were not executed. I personally hate buying OTM options over $2.00 with only a day to go. Nevertheless, the 490Ws traded down to $1.60 hitting $8.20 near 2:00 PM. “I missed it by that much" as secret agent Maxwell Smart used to say on his TV series.

So, instead I put out two additional option trades. The first involved selling a 490 straddle for at least a $4.00 credit. After a near death experience for non-NET traders not knowing the market did an ORBO (Opening Range Breakout) near 1:30 PM. NET traders know to short E-minis on market breaks through the opening high or low. I sold an equal number or S&Ps for each put short just before the break and as well relating in the Chat Room to sell a break of 1050. The trade was a nice $300 winner per straddle with the puts expiring worthless and the calls just over a $1.00.

The second trade recommended at the same was to buy the 490W calls and hedge aggressively with E-mini shorts. I recommended buying these calls under $1.00 and scale-in at lower levels. Personally, I was filled as low as $0.55.

Why is the above strategy safer and better than a straight put buy? Once the market breaks down after the opening the VIX explodes as everyone is buying puts. I even mentioned in the Chat Room on Thursday when the VIX was 22ish that I thought the VIX could trade up to 28 this week. Friday the VIX almost hit 28. To put this rise in volatility in perspective, imagine if we bought a $4.00 put on Wednesday with a 20 VIX. On Friday with the VIX at 27 that same $4.00 option would cost you 33% more or $5.25. Call prices are affected by the higher VIX but are still much cheaper than a similar strike put. In addition, you have a limited loss with the long calls while you have an opened-ended profit potential with a short E-mini. There is one more great benefit. At an important inflection point (the market could go either way), if you are wrong and the market rallies you can also make money going up. Conversely, you would lose substantial monies on any expensive long put. You only lose if the market stands still for a few hours. In this volatile market movement is highly probable.

The hedges made between $350 and $550 per long call depending on your option trading skill level. If you sold the calls near the low subtract $50-60.00 from the profit. However, if you held these "free" calls until the close you could have sold them for a $1.30.

On the 2:00 PM “B” Intraday Chart I recommended that if you wanted to continue to hedging buy the 485Ws under a $1.00. These calls traded down to as low as $0.60. There were two possible hedges. The first could have earned $100; the second hedge would have lost $100-150 when the trade got stopped out at either the breakout of the downtrend line or the ORBO resistance. Remember this common trader maxim: broken resistance becomes support and vice versa. Knowing this the trader could have held long calls into the close. The calls closed at $6.30, another possible 10 bagger (10X) the 4th in 3 weeks! Tell me where else could you have so much fun. The market was so volatile at one point I found myself long and short the same 490 calls in two different brokerage firms from the short straddle to the long call with the E-mini hedge on. Yikes! See NET Money Chart 2010-02-05 "C" chart.

Summary of the Week in Review:
This past week reminded me of the time back in late Feb of '07. The market had just rallied about 240 S&P points from the June '06 lows in a straight line into the year high. At that time the traders were unwinding of the Yen carry trade. Every year there is a strong upward bias in the Yen as Japanese firms repatriate funds back home before the March fiscal year end. The strong Yen was generating substantial margin calls around the world. I wrote that if the Yen broke a certain key level the market could drop 100 S&P points in a matter of days. Every foreign dignitary that was worth anything came out in support of the USD. The Yen stopped rallying but not before the market dropped over 100 S&P points anyway in 3-4 days. After that selloff the market rallied to new all time highs into October ‘07, the bull market top. This last 110 point S&P decline reached a climatic low Friday after huge USD carry trade unwound and massive reflation trade liquidation took place. The market action may seem similar but the world is in a very different place today.

I did say that 2010 would be the year of the trader where stock selection is key. No longer can traders count on the buy the dip mentally to make easy money as in ‘09. 2010 has already seen four 10 bagger option trades in 3 weeks. Happily, I'm looking forward to many more before this year is over.

Regarding BTIM and ISCO, Pat Cox said the ISCO would report an important company announcement. In my book, it’s an SEC rule violation (Rule 10b-5) when a corporate executive secretly gives out material information to a Pat Cox or any other stock-picker newsletter person without first disclosing the information to the general public. Because there was no such "major" disclosure by ISCO that should have been evidence that there was not going to be some "major" announcement on Feb. 5 as Pat Cox suggested there would be.

I was extremely disappointed with Friday’s ISCO investor’s conference call. In the first 5 minutes the CEO related there would be no significant announcement. This “great announcement of impending news” supports my trading thesis of "Buy the Rumor and Sell (before) the News". Just over 30 days ago ISCO was $0.50. Three days ago ISCO was at $1.98 and had a $200 million fully diluted market cap. Friday morning, the stock was $1.79. I had already told one of my Chat Room traders who bought ISCO around a $1.36 to sell almost all (selling at $1.73 at the time) before the conference call started. As anticipated, ISCO closed lower at $1.20 Friday. Trading like this isn’t Mr. Toad's wild ride, an amusement park ride. For the record, I may consider going long ISCO under $0.75. Too bad BTIM had to suffer along with ISCO. Keep buying BTIM lower and keep the faith.

As always keep those calls and letters coming. I heard a number of you did quite well this week. Keep up the good work.

Good trading,

Stan Moore
702.267.0396

NEWSLETTERS & RECOMMENDATIONS - JANUARY 24, 2010

Dear Friends and Fellow Traders,

What a week. After seeing stock markets hit new yearly highs it took all of three days for the S&P 500 to move from 2 standard deviations above its 50-day moving average (DMA) to 1 standard deviation below its 50 DMA. Yes, I've been talking about a 10% or so correction but not now. While the potential cracks in the market were apparent for some time, vast amounts of worldwide liquidity sustained rally after rally.

This week’s stock market 5% decline couldn't be ascribed to any one thing. A potential decline has been building and all of the negatives hit at a time when the markets were priced for perfection. It started last week when stocks sold off hard after beating EPS estimates and continued as a possible default in Greece grew. (Greece's is too big to fail?) There were signs of Central Banks exit strategies and raising rates had begun in a number of countries. China froze lending for all of Jan after loans grew 100% year over year. After the Massachusetts Brown Senate election win the Dems seemed to be in disarray. Fed Chairman Ben Bernanke may not be reappointed Chairman of the FED as some up for re-election Dems were out looking for a scape goat. Finally, Obama tours the country telling everyone he wants our money back bashing banks in the process.

I believe out there in markets around the world it appears that the giant global liquidity pump that rallied asset prices is slowly being turned off. This points to lower prices for risk assets as the USD gets stronger in this environment. Right now the market lacks sector leadership. The three best groups’ techs, materials and financials are failing. It's hard to see the markets going back to 1150 let alone 1200. Goldman Sachs thinks everything is starting to point in the direction of Japan's lost decade. Ugh!

There is good news out there is that markets are oversold. Volatility is back with its 20-30 point range days if we're lucky. 1085 is a large support shelf that held the October breakout prior to the breakout to new highs. However, it’s bad news if this level fails to hold. The market spent two months basing before breaking out again to 1150. The next important support area is near the 200 DMA or 1010ish. This would give us our 10% correction. Look on the bright side, YTD China's down 14%, Brazil 10% and Germany 8%. I think we may get a 10% correction just not yet.

Next week, Obama has a great chance to lead this great country as he will give his first State of the Union address. Between now and then, he needs to stop, rethink, recalibrate and learn some painful lessons. Obama should be focused 1000% on Jobs and growing the economy and nothing else. He needs to accept that the country was not voting for a left-wing agenda in 2008. Instead, the public was voting out a Republican leadership they deemed unable to govern effectively. The person the American people thought they were voting for in 2008 was a moderate who wanted to bring transparency to government and work with leaders of both parties on common-sense reform.

Remember JFK did the same back in 1962 [yes I was alive then] when he attacked the steel companies. The market crashed by 20%. He adjusted, cut taxes and focused like a laser beam [didn't have 1 back then] on the economy. He was a great leader when we needed one. We can only hope we are at the fork in the road. Obama can become a great leader and do the right think or he can take us down the path to divisive class warfare than helps no one. May he chose wisely but don't get your hopes up.

Looking ahead the Wednesday FED meeting should contain no surprises. Another big decline in weekly jobless claims could upset markets but the number should be in the markets already hit hard. 4th quarter GDP released Friday should be in the 4.5%-5% range. But this would be no surprise.

Last week we clearly broke down from a multi-week trading range as noted on the Wednesday 30" NET Intra day Chart. On Wednesday I wrote on the 30" intra day chart we could go with the breakout in either direction. A possible break down was confirmed on the daily chart given the large divergence on the Oscillator headed from jammed to 44. I wrote that we could become more aggressive and favor the short side in one of my Alert Emails.

I mentioned in the Chat Room Thursday morning I was looking at puts on Thursday morning but the market never rallied into my sell zone. I favored the Osc divergence on the Daily chart. In hindsight, I was much too cautious given the power of the 10 month rally and I thought the better trade was the call setup at the large 60/40 buy commonality and the 20 DMA with a possible daily chart sitting on the Oscillator’s 44 from a jammed high. This trade had been gold for the last 10 months.

I recommended buying calls in a Thursday morning Alert Email at the above large buy level with the caveat that the call trade may take awhile for the trade to work out. Therefore aggressive hedging of the calls was recommended in the Alert. The calls did double off the lows but the hedging turned out to be one of the best opportunities I've seen in months. Ideally there were 5-6 S&P E-mini hedging opportunities against the calls.

Depending on the skill level of the trader and the % hedge (50-75% could have been used). I calculated a full hedge could have earned over $1,500 per S&P hedge while a less aggressive style might have earned over $600. In the Alert Email I did write that one should hedge aggressively since the market would not rally much if at all until GOOG and AXP reported their expected much higher EPSs after the close Thursday. Both companies beat but all the S&Ps could muster was a 4-5 point rally back to 1115 in the overnight session that should have been hedged or sold into.

Friday's pre market Alert Email confirmed we were not going to rally much and to sell calls into any rally. I thought at best the market would rest. At the opening calls were crushed from the $1.65 previous day’s close. A trader would have lost over 50% of the call purchase price. A brief rally would have mitigated the lost somewhat. Again Friday morning I mentioned buying puts in the Chat Room at the 1113-5 area but the market never reached this area. I wasn't aggressive enough and watched the markets slice through support after support. The $0.80 OTM puts hit $8.80 later in the day! See the NET Weekly Money Chart 2010-01-22.

In summary, the markets were totally shaken by the build-up of bad news every day after Brown's Senate victory and sold off. Good news didn't help. Traders were aggressively taking profits, content to shoot first and ask questions later. I also believe that selling was more pronounced given the expiration of the January LEAP puts. Therefore, the risk protection under the market was not there in size. The VIX rallied over 50% for the week. There is a great deal of fear that wasn't there before. I will look to take advantage of this decline to load the boat on BTIM and sell market rallies back into break down areas until I lose money.

This is a rather good link describing relationship of BTIM with their partners as well as their business plan -> Good News from the BTIM Message Board. And checkout this article: IPS cells are big part of stem cell future therapeutics; hence BTIM will be major leader -> UW Stem Cell Study Makes Heart Association's Top Ten List.

Thank you for all your support and keep those cards and letters coming.

Good trading,

Stan Moore
702.267.0396

Next week it may not be earnings or anything fundamental we are looking at but the results of Tuesday's election in Massachusetts. In a state where Democrats outnumber the Republicans 3 to 1, Republican senatorial candidate Brown has pulled into a statistical dead heat with his opponent. Obama will fly in Sunday to help. This trip had not been planned. Should Brown win or come in close conservative Democrats in all corners of the land may run away from Team Obama especially Pelosi and Reid. We get gridlock in the Senate and maybe the House. The markets will love that and the rally should continue before a more serious sell-off occurs.

Thoughts on last week’s market action:
What have we learned from the first real sell-off in the new year? Yes, this market is extended. Yes, we are due for some weakness. However, is this the time for markets to succumb and roll over? My favorite answer is let Mr. Market tell us what it wants to do. It may be a mistake to believe the market is wrong when it doesn't rally on what seems to be great news. Understand this, "The Market is never wrong". The market does what is has to do to "screw" most of the traders most of the time. Don't ever argue with Mr. Market. You will never win. I have learned great respect for this "Force" over the 49 years I've been trading.

Anticipation by Carly Simon is a great song from our past. Markets anticipate on all levels and timeframes. Therefore, to become the best trader you can be, you should learn how and when to buy the rumor, sell the news versus scalping a trade here and there. See where that gets you. Otherwise look for another gig. I cannot recall how many times I've said this to students over the last 10 years after I started teaching fundamentals with technicals.

Well, at NET this is exactly what I teach. The vast majority of traders can't or won't trade in front of news. Traders can trade what they perceive the reaction to the news is. This is much easier to understand. Here you can earn a very good living but the risks are bigger. How many times have I said, “We should have an expectation for every trade.” For example, from this or that news or this technical setup we should do X. So, if X doesn't happen we go the other way. This understanding alone puts us in the top 5% of all traders. Anticipation is the key idea here.

http://www.scimitarequity.com/blog/2010/ (See BTIM mid-way down the blog page.)

NEWSLETTERS & RECOMMENDATIONS - January 10, 2010

Fellow Friends and Traders,

It doesn't get any easier when you understand that fundamental news, money flows, etc. move markets and technicals only paint a picture of these fundamentals. The fundamental money flows out had the market going down into year end and the huge new inflows (mentioned in the last newsletter) told us the market would be higher the first week of the new year. The market’s down 1.5% the last two days of '09 and now up 2+% the first week of '10.

During late '08, the start of tremendous world stimulus programs by all governments and central banks told us the equity markets would move substantially higher into '09. In fact, every naked put suggestion or recommendation I ever mentioned in the Chart Room or wrote about since September '08 and again during March '09 will expire worthless this coming Friday 1/15/10. Nice work if you can ever get those put premiums again.

Yes, some of the put premiums did go to buying calls that did extremely well. In hindsight I should have put all the put premiums into Jan '10 calls and took the year off. That good I'm not. I am a very cautious person by nature and I like to make money even if I'm wrong on the markets and the markets didn't go up. I will continue to sell puts on those stocks I'm willing to own below the market. This is not a strategy for every one even though it works rather well. Call me if this appeals to you.

Why you may ask? The largest part of the '09 Obama economic stimulus program is being spent during the first 6 months of '10. By design!  Everything should come up roses these next 3 months. The FED is on hold for all of '10. S&P making 1200 should be easy as I said making 10,000 was for the DOW in the 3rd quarter. Furthermore, I now believe the one big geopolitical risk is off the table for at least the next 6-9 months. The IRAN’s drop dead date of 12/31/09 has come and gone without a peep. I'm totally convinced the Obama team is resigned only to containing or trying to contain a "nuclear" IRAN. The U.S. is now slowly moving to help the Iranian opposition but Israel cannot wait. Stay tuned but the story is off the front pages for now.

According to Stratfor.com in this week’s Barron's Russia is moving quickly to recreate the old USSR and is moving ahead quite aggressively while we are pinned down with all our problems. This will give them even more power over IRAN in the future. Obama good luck here too!  Russia and Germany are moving ever closer over energy and German technology which give Russia's energy and political future a huge boost. But that's a problem for another day and not quite tomorrow.

Option Trades in Review:
I emailed the first option put trade alert for 2010 Thursday after 2:30 PM. The stock market was expecting a very positive Jobs # Friday morning @ 8:30 AM. The S&P was at a yearly high near 3:00 PM. This alert was put out as a "must hedge" trade. Traders should buy the 525 Ws under $1.50.and trade E-minis long on dips. The puts were purchased as low as a $1.35. Within 30" the puts were trading over $2.00. The S&Ps sold off over 4 points into a 40% buy. S&Ps were bought and could have been sold after 30 minutes for $200 profit per E-mini.

There were a few early morning hedging opportunities pre-opening after the surprise negative Jobs #s. The market dropped about 5 points into a MD 40% (1133) buy level where long E-minis could have purchased for a $150 profit when sold at a 40% sell/retest area. Shortly after that the market hit the overnight low at a 60 MD buy level near 1131. Another long was entered and could have been sold at the opening near 1136 for as much as $225 profit per hedge. The 525 W put opened on the small gap lower @ $1.15 on a few then hit $1.65 at the 10:00 low.

Trade Summary:
If a trader bought the 20 puts @ $1.50 (a $3,000 investment) and bought only 10 E-minis long (or, optionally, could have bought as many as 15) as outlined above the trader could have made as much as $525 per hedge times 10 E-minis or $5,250 which let's say lost $0.25 or $500 on the puts. Net profit was anywhere between $4,000-$5,000 in less than 2 trading hours with no overnight margin. You can see why I said this was a "hedged trade" set up. I sent out at least 5 intraday emails over the two days to help you through this trade.

These fundamentally-based option trades have worked extremely well over these last 28 years because at price extremes the news is already in the price (market) so when we are wrong (rarely) we lose very little. However, when we are right we average returns over 100% in a day or less using options alone and much greater returns when hedging. I've been teaching exactly this fundamental and technical- based technique going on 10 years now and I'm the only one doing so – that I know of.

Other possible trade Reviews:
There were other possible option trades Friday. A few students called in and bought calls as early as 10 AM. I also mentioned in the Chat Room I wanted to short the 525 puts over a $1.00 since they should go out worthless. They did. After 2:00 PM I mentioned in the Chat Room that I thought there were 2 possible trades given the extremely narrow range then.

First, we could buy puts under $0.50 and go long the S&Ps. I could see a few hedged trades making $150-$200 per long contract or losing $50 on our puts even if the market did not take the high. The best trade I thought was to buy the 525W calls under $0.70 down to $0.50. Even if the market only went back to the highs we could make 2-3X depending what we paid for the calls. The calls could be worth between $1.50 and $1.75. I entered a scale-in buy order for the calls lower than $0.90. Unfortunately, the 525s never traded below $0.90 and closed at $2.80 as the market took out the high by a few points, stopping only near the 60% sell of the May '08 highs.

So, if you want to take your trading to the next level or if you just want to receive our Intraday Charts/Alert Emails, don't hesitate to call or write.  I expect to generate another 25-30 alerts this year any one of which could more than pay for years of my services.

Good trading,

Stan Moore
702.267.0396

P.S.
“The US faces projected deficits that seriously threaten its bond market, exchange rate and the economic future of every American.”   – Robert Ruben, former US Treasury Secretary

NEWSLETTERS & RECOMMENDATIONS - DECEMBER 27, 2009

NEWSLETTERS & RECOMMENDATIONS - Nov 22, 2009

Fellow Friends and Traders,

Hold the party! After the "Talking Heads" all told us these last two weeks now that we cleared 1100, 1150 was just around the corner and 1200 was the year-end target, the market does what it has to to cause the most pain to the most people. It turned around and broke back below 1100.

The referenced chart – NET Weekly Money Chart 2009-11-06. Here’s a trading lesson for futures and option traders who desire to make high-probability, low risk trades. There are at least 20 market moving economic news releases a month. That's too many to trade. So how does a trader take the ones with the greatest reward and least risk? These trades can be either swing (multi day) or intraday trades depending on your trading style and desires. Traders try to game news to see if economic releases are already factored into the market price. To succeed traders should be trying to buy the rumor and sell the news or vice versa.  The best trade is to fade expected news at large support or resistance levels prior to the release. The New Era Trader (NET) methodology likes to trade with cheap OEX expiring options now every week but we also actively trades the S&P E-minis. I've been teaching exactly this using options and/or S&Ps the last 21 years with much success. I have found out over 28 years that a trader gets 3-4 very good high probability setups a month. The probability of success is well over 80% for a double. When the trade loses it's generally less than an option point. This is all covered in the NET basic training materials. I'll use Thursday’s (Nov 5, 2009) strong rally into the close for a put setup to trade prior to the Friday mornings expected favorable job's #'s release. The market has rallied some 34 S&P points from Mondays low into a RT/F of the 10/21 high 1064 with the 20 DMA above at 1071. Support was 1055-6 down to 1049-50. Late Thursday I suggested buying the 490W puts starting near $2.00 and scaling in lower. I believe the puts closed $1.45 bid. If the Jobs # disappointed the market would drop 10-15 points before finding support. The puts would trade north of $3.00 if the market l sold off hard and traded there for awhile. If higher we'd buy new higher strike puts into resistance. To lessen the risk I related to the chat room members to buy any overnight weakness using the E-minis long against the puts. But traders had to sell any expected rally prior to the 8:30 AM release. There was a potential 4 point long a few traders caught for a $150-$200 profit.  This trade cut the option cost in half. There was strong overhead resistance between 1068.00 to 1071.50.  A few traders called before the job numbers announcement. I told them since the options weren't trading we could short the S&Ps up to 1071 with a stop at 1075.50. If the market rallied there after the opening we could use cheap 495W puts to average in. The market would take profits. Remember buy the rumor sell the news. Unless the job # came in well south of 100,000 the S&P 1071 number was factored already in the market. Besides a strong # would most likely speed up the FED time table for raising rates and the market would sell off anyway. NET traders placed scale-in S&P sells up to 1071.  For example, put trades at 1067, 1068, etc. On the news, the market rallied to a high of 1068.50 in the pre-market session where we sold about 40% of our original entry.  Then the 10.2% jobless # followed and the market sold off hard over 14 points right into 1055 area. Since we couldn't sell the puts in the pre-market session the next best thing to do was cover our shorts into support. The original strategy was to buy at least 50% E-minis against the puts, i.e. long 20 puts buy 10 E-minis long to lock-in a portion of the profit before the puts traded.  We were looking to buy more S&Ps if the market went still lower for a more balanced hedge. Traders could have made up to $600-700 profit or $300 profit per option on the additional shorts. On Friday the market opened right into support 1055.50 identified before the market opened. Since a number of us were long E-minis I never mentioned to buy cheap calls. E-minis could have been scaled out for as much as $400 per option contract. I suggested selling puts. They opened at $1.70 but I still lost nearly a $1.00 over all selling out into the rally. In summary, NET traders could have made over $800 per contract with the E-mini hedges while losing only $100 per long put. Additional optional Friday morning trades: A few students bought the 495W calls under $0.80 at S&P support. The market rallied back into resistance at 1069.25. The calls could have been sold for as much as $2.45 in the first 30 minutes. At 10:00 am, a 495W put trade could have been entered at $1.10 and then could have been sold for over $3.00 before 11:00 am.  See the chart for entry and exit specifics. I know nobody did all these trades and I know I didn't but I'm sure you get the idea of just what is possible nearly every week. There is no one out there doing this let alone teaching it. Spend a year or so with me. Give yourself an edge. Call me.

NEWSLETTERS & RECOMMENDATIONS - OCTOBER 25, 2009

Fellow Friends and Traders,

Last week was a wild ride for NET traders to potentially obtain substantial option and BTIM profits.  BTIM sold down to $4.35 early and rallied to $6.40 Friday after announcing the company will be listed on the NYSE/Amex on 10/30. Their common was up nearly 50% while the warrants popped over 60% from the lows. Can't say I didn't alert you to the listing and what it would mean.

This week we had 2 rather good option trades. I alerted our subscribers to the call trade setup on Wednesday's "C" chart if the lows held Thursday. The lows held. The 500 weekly calls rallied from a low of $1.60 to $6.50 Thursday. Friday the S&P's opened near the highs and the 505 weekly puts traded between $0.60 and a $1.00 for the first 30 minutes. Late Friday these puts hit $6.40.  See the attached 30" chart below for option trades.

Week in Review:

Last week, I wrote, despite the outlook for great earnings reports, there would be substantial selling into S&P 1100. The S&P's hit 1098.50 and sold off hard not once but twice. Remember it's not about the earnings it's how the market reacts to those earnings. Several things are very clear. The companies continue to guide analysts lower so these companies can surprise on the upside and many stock holders have already discounted this game.

So far the market has only suffered 4 mild sell-offs. This pattern has been easy to spot. The market rallies to a new high then trades sideways for awhile. Traders become bored, rush to take profits and the S&P sells off 2-4% and then rallies to new highs. This pattern has been observed twice in August, once in September and now in October. This tells us that traders are counting on continuing good news but are not willing to tolerate bad.

One good thing to report, traders bought 3 puts for every call last week. "Protect" is still the mantra and should continue to moderate all declines for now. The advice I continue to give is sell stocks and, if you must be long, buy calls.

Potential Red Flags for stocks:

Economically we continue to face significant headwinds of higher taxes and interest rates with greater regulation into 2010.  The risk of some FED action looms closer as the FED mulls a policy change. Treasuries have now sold off 3 weeks in a row with an even larger supply of bonds coming next week. I'm guessing IRAN will get the bomb and most investors will forget this threat until it's too late.

Just a reminder all the Bush tax cuts are to sunset next year.

The FED will soon shift signals to prepare the markets for reversing their easy money policy. The FED has been rather creative in saving the system but has only transferred the debt-loaded private sector on to the public one. It remains to be seen just how creative the FED reverses course.

The regulatory risk is rather high. Unfortunately, all financial regulators seem to believe they can manage the unmanageable risk and save the world from all "systemic" risk. If current policy trend continues I can see all the abuses of the system and all the advantages regulated right out of existence. The Govt means well but the end result will not be good for any of us.

Other thoughts on the economic landscape:

As usual Barron's Alan Abelson finds a few gems - this time the source gem is from Stephanie Pomboy of MacroMavens. (I knew her father when I worked on Wall Street. She may be even better with her work.)  Stephanie believes that companies have cut costs an unprecedented $327 billion over the last year or more than 25% of total cost. Yet, corporate earnings still fell a whopping $177 billion. She believes that for revenues to match this cost savings consumer spending would have to rise more than 3% from a current decline of -0.3%. That’s a 10X increase in spending – that ain't happening any time soon. Despite such daunting numbers the consumer stocks are up over 77%!

Stephanie speculates the market may be looking to the public (Govt) sectors to hire since the government has been the one hiring these last 10 years. While the private sector shed 588,000 jobs, the government created 2 million jobs during this stretch. The trouble she sees is that 1.95 million new hires were added to state and local government payrolls. Now these public sectors are in worse shape than other sectors and have shed 178,000 workers during the last 12 months.

Abelson, in closing, muses that somehow this fact has eluded the bulls.

Yes, we can show just how bad things are out there yet when the FED throws a party it’s best not to stay home. Enjoy, stay awhile and have a drink or two but be ever watchful for the time when the FED takes away the punch bowl. I'm guessing sometime early during the second quarter ’10 1200 on the S&P doesn't seem that far away.  Be careful out there.

Trade your brains out. Look for those killer Thursday/Friday option setups. The next big BTIM shoe to fall should be the company forcing the early exercise of its 10 million warrants. I'm guessing sometime in the next 30-50 days. Any price weakness will be a gift from the Gods to buy more.

Stay well and keep those cards and letters coming.

Good trading,

Stan Moore

Ph 702.267.0396

P.S.
Look at Soros's comments below. Wall Street is celebrating like it's 2000 and Main Street is dying. This will be a big problem for Obama and the Democrats with the voters next year. However, when not if it ends, we all will suffer. Enjoy the party while it lasts.

The big profits made by some of Wall Street’s leading banks are “hidden gifts” from the state. Taxpayer resentment of such companies is justified, “Those earnings are not the achievement of risk-takers.  These are gifts, hidden gifts, from the government, so I don’t think that those monies should be used to pay bonuses. There’s a resentment which I think is justified.” - George Soros, a very influential hedge fund manager, said in an interview with the Financial Times.

NET Weekly Money Chart 2009-10-23