NEWSLETTERS & RECOMMENDATIONS - Nov 1, 2009

Fellow Friends and Traders,

Before I attempt to answer this all important question let me review the past week NET trading wise:

Wednesday we had a major crack of the indexes. Arguably last week was the most significant "panic attack" we may have seen since the March lows. The selling was relentless. Volume was extremely heavy, breadth was ugly. Nearly every stock was down, even the Big MOs. This is what is known as distribution, heavy institutional selling and may indicate a change in trend.

On Monday I related we were looking for a decline by Wednesday to buy calls in front of Thursday's expected super GDP report (as the whisper # was as high as 5%) and an End of Month (EOM) markup. After the lower 1st few hours of Wednesday, I recommended buying the 495 weekly (W) calls averaging in from $2+ to under $1.50. The calls closed near $1.00. However, if you hedged the long call with a 50% short E-minis on all the rallies back to the trend sell level (an Osc 62 reading) you could have earned over $350 per call!

Near the close I mentioned both in the Chat Room and noted on the Intraday "C" chart any future call buys should be made in the 490Ws as our 495s were more than 10 S&P points OTM and would not work as well as the near the moneys would. Before Thursday's opening the very good GDP #s popped the markets into a small sell target area. I recommended sale of the 495s for a small loss and purchase of the 490s on any pull back. The 490 calls could have been purchased between $2.50 and $2.80 and reached a high of $7.00. I was wrong.  The 495s, after hitting $0.80 on the retracement, closed near $3.20, a 4 bagger! The size of the EOM markup really surprised me. Nevertheless, I still noted on the "C" we will own puts Friday for all of the above reasons.

While Thursday was almost a complete reversal of Wednesday's negative action with a plus 7/1 A/Ds Friday started out with a negative A/D reading of 1/2. For the markup to continue we needed at least a 3/1 positive reading. The market even sold off a great Chicago PMI reading. You could have owned the 490Ws put under a $1.00. Optimally, the puts hit a high of $7.70 for a 10 bagger. For more information see the two attached NET Weekly Money Charts for Thursday and Friday.

I'm hearing from a number of my Wall Street contacts that this is one of the most difficult markets to trade.  I just smile and bite my tongue. What are they thinking? We have cheap options to use every week and in the last 7 days the market has swung through 6 triple-digit moves. This is NET trading heaven. During this time we'd had at least 4 option trades for almost 20X your money and the hedging has never been better with this greater volatility. Can it get any better? Let's hope so. Right now a 30 VIX tells us to expect 20+ point daily S&P moves.

New thoughts looking ahead:

The bull market isn't dead but the S&P has reached an important inflection point at 1100. The question we should all be asking is when or has the market begun to discount when all the stimulus factors - such as low interest rates, government bailouts, tax credits etc. will be changed or withdrawn. Right now other nations are or have started to wind down some of their stimulus programs even though these countries realize the recovery remains fragile. Don't worry about our FED doing anything but staying the course for at least 6-9 months. Otherwise, politically, the FED will become a new branch of the U.S. Treasury.

We do know now the market isn't enamored by good news. However, I believe this selling was exacerbated by Mutual Fund managers anxious to lock in gains as the majority of funds have a fiscal years ending October 31st. Furthermore, investors have withdrawn over $19 billion from these Funds during the last 60 days.

Remember it was only a short while ago that I warned you that over 92% of all stocks were trading well above their 50 and 200 day moving averages. We almost always get worthwhile corrections from these extremely overbought situations. Presently only about 40% or so are selling above their 50 DMAs.  Again, let me remind you the declines in bull market are hard and fast just as rallies are in bear markets. Step back and take a deep breath. This is what we've been waiting for.

I have also focused on a coming USD rally for the last month. Primarily, because at every year end financial institutions square off their derivative positions so as not to show them in the financials for whatever reason. Their institutional USD buying forces short covering which in turn forces the USD higher. In today’s environment stocks may continue lower.

We will get a very good idea of where the market is going next week with the release of 3 important pieces of economic data. Monday we get a manufacturing report (the ISM number). Next the FOMC meets midweek. Their words will be examined under a microscope. Finally on Friday we receive the jobs number.  In my opinion all three numbers are expected to be positive.  If the market reacts poorly to the data, I expect the market may sell off into the 980 area or the 100 day moving average. Below that we have the all important 950 break out level.

Right now I'm taking a trip down memory lane to the huge rally in 2003 following the Iraq invasion. Just like now the market exploded higher sucking most stocks with it higher. After that we spent most of 2004 moving sideways in a multi-month trading range. This would be another NET trading heaven. We could call this a stock picker’s dream market. For the first time in months I am starting to sell puts on a few financial ideas from the past. No hurry. I will alert NET subscribers when I can see the light at the end of this tunnel.

I continue to own and trade BTIM on the fringes. There is one BTIM follower on the Yahoo message board who writes and I paraphrase: The upside over the next 2 years is 20 points with only 2 points down. The real discussion should be taking place as to the worth of stem cell research and their influence on the medical field. It all comes down to what investors believe the potential to be.

If you watch the annual meeting presentation by Dr. West posted at www.biotimeinc.com and believe only a fraction of what he says there the stock is a big winner. If you believe it's at all possible this stock could be anywhere some wants it to be. Use any weakness to add to your position.

My strategy of trading the cheap and highly-leveraged expiring options every week continues to make $$$.  You don't need many options to make a great return every week but you do need some specialized option trading skills.

Keep those cards and notes coming,
Good trading,

Stan Moore
Ph 702.267.0396

NET Weekly Money Chart 2009-10-30 1 of 2
NET Weekly Money Chart 2009-10-30 2 of 2