NEWSLETTERS & RECOMMENDATIONS - May 23, 2010

Fellow Friends and Traders,

All I heard and read last week was that investors were cutting back risk. Traders or investors have been too complacent about risky assets. I see China rolling economically while Europe is trying to bail itself and their banks out. Carry traders are carted out head first while the U.S. is generating Greek-like debt numbers. I'm wondering if HFT traders are next to lose their jobs with the new financial regulations. Investors need to get ready for a whiff of deflation and lower bonds yields. Yet, I feel the world is better than you think. I smell opportunity and, if time permits, I will put out my next 3 Special Situation recommendations soon to our Alert Email subscribers. I'll call this my Get Rich Slowly Program.

One major thing to keep in mind at this point is that a failed rally attempt back to high is a major change in market character. We have not seen this happen much at all during the last 15 months. Many traders, I guess, were/are not prepared for Mr. Toad's wild ride after all while traders were dumping assets like we're headed for new lows.

At this point I'm sure most of the downside risk is off the table for now. Friday's opening sell-off was climatic, to say the least, coming after a 30-to-1 negative Decline-to-Advance ratio on Thursday. I cannot remember a number so poor before. The extra hard sell off came after Germany moved to ban all short sales. Many US investors remember all too well the 28% market decline suffered over eight days after the SEC imposed a similar short ban in September 2008. The first time I was concerned but not much the following times. Most portfolio managers (PMs) around the world will embrace America in this flight from risk. In a sorry state of world affairs we're still the best of breed.

The buy and hold strategy has been dead for some time now. Even PMs are trading around their core positions. Unfortunately, they are selling weakness and buying strength when it should be the other way around. This makes for great market volatility and profits for a NET trader.

Trade Reviews:
The hardest and most rewarding trade in these last 3-4 weeks was to short the indexes (i.e. the OEX puts) to protect and/or make money for one’s account(s). Short traders were taken out and shot these last 14-15 months. Even then my "Put Protection Trade" didn't make enough money to completely protect my large BTIM position. Still, my short protection trade earned a 9X return in the 3-4 weeks the trade was on! However, I can buy a lot more BTIM lower now. BTIM retraced back to the BO level of $5.25-.50 for an excellent reentry.

BTIM's CEO Dr. Michael West will be speaking at a stem cell conference in Boston next week on May 27. Information can be found on the company's website.

For the second time in as many weeks NET traders had another possible 10X+ return in less than one hour. In an Alert Email sent at 2:48 PM I suggested buying the 490 calls starting at $0.75 scaling in lower. See Email Alert date 2010-05-21 2:48 PM, see trade entry below:

From: stan@neweratrader.com Sent: 5/21/2010 2:48:08 P.M. Eastern Daylight Time Subj: New Era Trader / Looking @ 490 calls $.75 scale in throwaway into 1070 ----------------------------------------------------- Hello Intraday Chart/Alert Email subscriber, Again Hedge. Good trading, Stan Moore

and 3:48 PM trade exit Alert Email:

From: stan@neweratrader.com Sent: 5/21/2010 3:48:27 P.M. Eastern Daylight Time Subj: New Era Trader / Hits $1.55 I and I’m already gone. Tonned $s on hedge ----------------------------------------------------- Hello Intraday Chart/Alert Email subscriber, Good trading, Stan Moore

(Of course hedging always helps reduce costs and parlaying allows building a larger position.) Shortly thereafter the calls hit a low of $0.20. I then sent another Alert Email to sell the calls trading at $1.40-2.00. The calls finally closed at $4.40 for a total possible return of 5-22X in about one hour! That’s leverage with minimal risk! See the Friday’s NET Weekly Money Chart 2010-05-21.

I have just finished a two-part 40 minute video on the Put Protection Trade on the daily chart and another reviewing the 20 bagger and related subjects from the 30- and 5-minute charts this week. If you would like a link to this two-part advanced-subject video send me an email.

Congrats to all the put and call traders that scored big time these last few weeks. This success warms the bottom of my heart.

Keep those cards and letters coming.

Good trading,

Stan Moore
702.267.0396

P.S. “The world is on a journey to an unstable destination, to unfamiliar territory, on an uneven road and, critically, having already used its spare tire.” Pimco’s Mohamed El Erian, May 2010

NEWSLETTERS & RECOMMENDATIONS - May 10, 2010

Dear Friends and Fellow Traders,

Over a year ago I was hearing and reading about high frequency trading (HFT), flash orders, predatory algorithms and other such terms but it's only in the last few months that I begun to fully understand what weapons of mass destruction (WMD) these trading programs truly were. Sure regulatory government agencies knew about these programs but the SEC was sold a bill of goods that these programs "provided liquidity" to the markets and were absolutely necessary. So the SEC drank the "Kool Aide" supplied by Wall Street and the hedge funds. Can these guys (SEC) really beat GS in a trial? I don't think it will come down to that. GS is under tremendous pressure to settle. Too bad!

Let's try to understand what really happened this past week especially Thursday. First let me tell you there was no trading error according to the CME exchange!! There was no "fat finger" as "They" would like you to believe. Our market can handle Billion $ buy and sell programs. I've been talking for months now in the Chat Room about this low volume rally. I exited all my equity holdings over 3 months ago to concentrate on E-mini, weekly expirations, option/S&P hedging strategies and BTIM. The returns have been quite adequate. For example, BTIM is up over 60%. Stocks were no longer attractively priced.

By now you've all heard about the "Shadow Banking System" I've talked about for years and how it totally fooled the Regulators. Remember B.B. saying sub-prime was not a problem? I told you it was a serious problem for the markets way back in early '07. Now say hello to "Shadow Liquidity"! So long as there is nothing wrong in US markets, the depth of liquidity that is, the amount of stock, currency, futures, etc. you can trade without materially moving the price is impressive almost certainly the best in the world.

Largely unnoticed and least known among nonprofessional investors, liquidity has changed immensely in recent years because traditional providers of liquidity in the past market makers and other participants are not standing so ready to make the other side of the trade. Today, the machines (computers) are in control! Today, in the snap of your fingers, a computer can complete over 20,000 trades. So now fewer market makers are prepared to make a market for the sake of market health. Potential market makers find that others, such as HFT traders, are jumping in and out in front for pennies and thus frustrating many of these former market participants.

For the first time we have a lot of providers of the shadow liquidity algorithms (there are more learning and entering the game weekly) and high frequency trading accounting for as much as 70% of daily activity. However, it is now very apparent that in market crisis when liquidity was always the hardest to find liquidity now doesn't just become hard to find, it disappears altogether. Market makers now stand aside as panicking orders pour in. The machines can turn-off or even become sellers with a push of a button. Viola! Down 700 DOW points in a flash!

The recent gapping of the market is a symptom that our markets are not functioning correctly. It's a wake-up call that the renowned liquidity of our markets can still disappear in a crisis. I'm now awake and aware just what can happen. I truly believe now that what happened Thursday was nothing more than computers all selling at the same time. The crash was caused by a little boy standing in the crowd shouting out that this rally actually had no clothes or was that an emperor I read about back in my youth.

The sell off came "because there were no real buyers." The Quants had the ability to manipulate the market higher. These HFT-type traders worship at the altar of momentum. When the momentum changed so did the machine’s program. If the SEC, Congress or whoever cannot fix the problem the next 1,500 DOW points will be down and that decline could occur in a day.

You all can't say I didn't warn you recently:
The VIX was 16. Over 90% of all NYSE issues were over their 40 DMAs. China was down 13% YTD last week and is now 18% down. China led the last decline. I told you the Greek crisis was a potential market killer, could last for years and prompts investors to sell risk assets and buy bonds. Providing more debt to Greece doesn't solve the problem. It's like pouring gasoline on a fire to put it out. The strong dollar is killing commodities and those stocks that pushed the market to new highs. We were approaching 1225-50 the last real target for this move up. The market was selling good news and earnings. US taxes are going higher and growth will slow down across the globe. I could go on. I've seen the movie. I know how it ends.

The present:
Today, all good assumptions about the market's solid footing and the enduring economic recovery were most likely swept away. More selling into what seemed to be a great job’s number Friday reinforced that feeling of unease. If nothing else it's a slap in the face reminding us that risk (or uncertainty) remains in the system. Tomorrow, ECB President Trichet could address the debt crisis when he speaks after a meeting of Central Bankers. He blew his first opportunity punish the speculators with his hedging comments last week.

The good news heading into Monday is that EU leaders agreed to setup an emergency fund to halt the spread of Greece's fiscal woes. The size was not specified. Only time will tell if this statement is enough to satisfy the "market vigilantes". To get ahead of this crisis the fund must approach $1 Billion. This amount is needed to buy Greek debt and support the Euro. If the EU cannot punish the "speculators" all bets are off.

This crisis is a serious deflationary event for Europe and will lower U.S. growth. The major problem ahead is whether the financial system gets frozen once again. The banks are in better shape this time. Be alert there are very strong cyclical tailwinds that will collide with very substantial headwinds in the second half of ‘10.

In summary:
The stark choices before the Greek government are not now in America's immediate future, However, a US fiscal deficit (one year debt) at 11% of the GDP and the overall federal debt level is rapidly climbing toward 100% of GDP are testing the risk tolerance of domestic and international markets. A WSJ editorial on May 8th noted, "…all of this ought to be a cautionary tale for politicians in Europe's other high spending slow growth states -- and for those in Sacramento, Albany and Washington, D.C., too. Greece shows that the welfare state model of development, dominated by public unions, onerous regulations, high taxes and other political allocation of capital has hit the wall. Down the road lies more Greek tragedy." So taking for granted Uncle Sam can indefinitely borrow at reasonable rates is a very risky proposition.

Trade of the week in review:
I wish I could say I earned the returns I wrote possible on my Thursday "C" chart or NET Weekly Money Chart 2010-05-07D. I setup a long call/short S&P hedge in the Chart Room earlier but I was trading the hedged side so poorly I exited the trade. I was leaving too much on the table and not letting the short side work better. Hindsight is 20/20 if I stayed in the trade. I could have lost $200 per call option and earned $2,000+ per option with the E-mini hedge. That's a 10 bagger in a few hours. Yes, you did equally well with long puts but you had to pay between $4-$6 depending whether you wanted to buy OTM or ATM and you had to be right about the direction which doesn't matter when hedging. The risk was much higher if you were wrong. OTM calls were less than $2.00. Besides, I was already positioned with the put spread from 2 weeks ago which are now fully paid for I might add. I'll tell you I was kind of frozen in disbelief as the decline started. I tried to sell the reminder (10%) of my long spread puts (paid $3.75 originally) for $45 worth $46-$48 at the time but were too deep ITM. The bid/ask spread was over 10 points with a $6.00 discount bid. The puts did trade at $40!

I did something right in the Chat Room, I bought over 10,000 BTIM for less than $6.10 and sold out over Thurs/Fri for better than $7.10. Nice work if you could get it.

Over the last month I started to highlight why (see above remarks) I was becoming more and more negative on the market. The best way to protect and/or make my students money was to create an OTM put spread just far enough OTM to mitigate the risk yet receive maximum return if the market declined to the 200 DMA.

Two weeks ago in an Alert Email I recommended my first multi-week option put trade in over 2 years - buy the 530 May monthlys and sell the 510s for a $2.00 debit. We even were lucky enough to double our money in a few days so I gave the students a chance to get out and re-enter the trade again at a $2.00. I found out some did. I even increased my position. It's easy to hold a position with no $s in the trade. That's what makes hedging so good. You take all the cost out of the option trade with 1 or 2 hedged E-mini trades.

As of last Friday the OEX closed in the 506 area where a 9X return would have been possible if Friday were the May Expiration. My recommended long put trade is a 6 bagger at this point. It's always up to you when to take some profits. Given the current market situation I see the need for more of these type trades not less. You can use the leveraged ETFs but the put trades define your risk better with more substantial returns like 7-9Xs if I'm correct.

As I predicted, Mister Toad's wild ride went off the rails last week. Lucky we had our put spread seat belts on. Keep them fastened. We ain't seen nothing yet.

Keep those cards, letters and calls coming. I read every one.

Good trading,

Stan Moore
702.267.0396

NEWSLETTERS & RECOMMENDATIONS - May 3, 2010

Dear Friends and Fellow Traders,

Greece seals an historic bailout deal with the EU and IMF for $133 Billion as thousands protest in the streets. Greece now faces "unprecedented" austerity and is caught between Greek bond holders who want faster reductions and voters and unions who are already chafing at existing austerity measures and will forced to give more. I feel no sympathy for the unions who can retire at 45 with full pay and receive between 14 and 16 months pay for 11 months work. I thought we had it made here in the US! At one time I thought unions were good. No more that's for sure.

We won't know what all this means for quite some time but let the market tell us this week.

Hello Greece. We, the USA, are right behind you. A week ago the stock market ignored the Treasury's redemption of nearly $494 Billion in April. That’s a truly stunning number and an indication of just how much cash the Treasury needs access to keep rolling its short average maturity debt load. Friday, investors starting to hold our collective breathe. By the end of this past week, the Treasury has now redeemed $596 Billion in April, an all time world record. Add $47 Billion in Notes and there is almost $650 Billion in redemptions. This number is simply mind boggling. Forget the interest expense. This ever increasing roll is the number one danger to the US and world economy. Should the Treasury be unable to keep issuing shorter and shorter dated debt it is for all intents and purposes "game over." However, this won't happen during the next 12 months. However, I suspect this won’t come to a head in the near term.

BTIM Update:
BTIM announced a $10 Million acquisition last week, an overseas stem cell company. The deal should close this week with more details to follow. Without Friday's sell off I believe BTIM would've have closed over $8.00 with $9-$10 sometime after that. Go BTIM!

Trade Reviews:
Last Thursday, 4/22, I send an Alert Email to all subscribers to protect your portfolios, the first email of its kind in the last 18 months. I bought May 530 OEX monthly puts and then sold the 510s for a $2.00 debit. The spread wasn't doable until the Friday/Monday rally. If the market declined 7-10% the bullish put spread would earn 9X return in 4 weeks. We got lucky and the market declined almost immediately. By Wednesday morning the put spread doubled in value to $4.00. I recommended take the profit and re-enter on a subsequent rally. That's exactly what happened into the Thursday/Friday highs. After Friday's sell off and if given the opportunity Monday exit again or hold the protection a while longer.

If you examine Friday’s NET Money Chart 2010-04-30D you will note not only the above trade but 2 other possible option trades for substantial profits. Wednesday morning, I sent out an Alert Email recommending an OTM call trade on the retest of the previous day’s lows. There was an early warning on the Final Tuesday "C" chart telling stating the same. The market held. Calls could have been bought as low as $1.15 and exited from almost $5.00 the next day. Most of the time, we start scaling into the lows and scaling out into the highs. For example, an average long option costs a $1.35 or so with the selling starting very small over $2.50 with most options sold over $3.50 if you did not hedge against the options.

Thursday, I recommended buying the OTM puts and hedging but selling all puts and taking none home resulting in a profitable trade. That seemed like good advice because the puts traded as low as $0.20 early Friday morning even with GS down over $5.00. The market seemed to be ignoring GS misfortunes. I recommended buying calls and selling S&Ps thinking its range would be quite subdued. I even sold almost 100 OTM naked puts around $0.75 after a brief selloff. I thought for sure these puts would go out worthless. I started getting nervous after 10:30 when it appeared that the market was failing at a morning break down level. I was lucky enough to cover the short in the Chat Room at $0.25. Why I didn't buy the OTM puts long escapes me. I started buying calls and selling S&Ps per another Alert Email. I fought the law and the law won as the song goes. Yes, I made money in the Chat Room but I missed the best trade of the last 6 months. The puts went from a low of $0.20 to $4.70 in a perfect down stair fashion as you will ever see.

Again let me say who needs to trade stocks or anything else with setups like these every week - trade cheap weekly option expirations and hedge and, potentially, parlay your profits.

Fasten your seat belts. Mr. Toad's wild ride (an amusement park ride) just got wilder. I see more of the same volatility in the weeks ahead. I thought I had a nice quite drift down into the summer doldrums. Think again!

Good trading,

Stan Moore
702.267.0396

P.S.  The above firm GS made over $500 Million for the U.S. Government while the 4 turkeys below will cost us taxpayers over $1 trillion. Yet none of them are going to jail where they belong. They are the dumb ones. GS was smart.

Dear Friends and Fellow Traders,

We may have entered and are only two months into a market sweet spot similar to Jul of 2006/Feb 2007 time period where the market rallied over 200 points with all corrections falling into a 25-35 point range.  Until last Friday, the market has held above 10 DMA for 42 days in a row, the longest stretch in 10 years. M&A is about to explode.  NET traders stay tuned.

The U.S. stock market has rallied 8 weeks in a row. All news is treated well. The market is chewing up and spitting out bad news with only a moment’s hesitation. It's spring and this spring a young man's fancy turns to thoughts of speculation as the Fed promises look good and as long as you're not a small business, you can borrow to invest and speculate at almost no cost. B.B. in fact is begging us to speculate, being unfair only to savers, conservative income investors like retirees, CD owners and money fund investors.

Under these conditions we have to be brain dead not to make money. Right? No, wrong! Most rational people understand easy access to credit has been the engine of growth for the past 30 years. Past and present easy credit is now being exposed in the media as a total fraud and has threatened to be dismantled or least turned into a shadow of its past and has created one of the greatest financial bubbles we have ever seen. At this same time the GDP would be solidly negative if it would not for inventory rebuilding, massive government spending and an additional $8-10 billion per month of consumer spending obtained from defaulting on their home mortgages. Yes! Virginia there is a Santa Claus and his name is Obama and his chief elf is none other than B.B. Just remember Bush started the bailouts with a $700 Billion TARP.

Exactly what is going on? It's taken me many years to understand that the game is "rigged." We have "Rigged Capitalism" designed to benefit the rich, connected and powerful - Wall Street and other financial institutions. These powerful forces will always find ways to benefit under any circumstances. Obama's trying but I'm afraid regulations won't work except to force capital to where it's treated better. Don't get me started here. That's a book!

Here’s a peek into our future. GE, one of the world's largest Corps, earned over $10 Billon in '09 but didn't pay a single dollar in US taxes. Their US operations lost $400 Million. Recently 5-6 S&P listed companies moved their corporate headquarters offshore to tax-friendlier countries. The rich will leave too and become citizens of other friendly nations. They will be welcomed with open arms. Frankly, I'm looking too. The "beat goes on" and will only get louder. Thank you Sonny and Cher.

Today and going forward, the major financial institutions are poised to make money like it's 2006-07 again. The primary bread-and-butter of Wall Street and its ilk are new issues and M&A. Deals are in a sweet spot where $5 to $10 Billion friendly deals can now be financed. New issues are coming to market in greater numbers than any time in the last two years. In fact, seven new issues came to market on just last Friday.

Wall Street's Black Boxes:

Right now Wall Street does not want anything to affect their money machine and will do everything in its power to keep the market from a sizable sell off. How does GS et al keep the markets up? There is been much talk from the SEC about "high frequency trading" or AKA HFT. The practice (see below) is frowned upon but it has never been seriously regulated because it's considered necessary to keep markets "liquid." This HFT game is dominated by Goldman Sachs. I've always called these investment banks Hedge Funds in Drag. The leading force, GS, was an investment bank until the fall of 2008, when it became a commercial bank overnight in order to capitalize on federal bailout benefits providing virtually interest-free money from the Fed so it could speculate, manipulate and control markets. Nice work and virtually cost-free money if you can get it.

Just how does Automated Trading Systems (ATS) work? ATS trading uses high-speed computers governed by complex algorithms to analyze data and transact orders in massive quantities at very high speeds and has been likened to a poker player peeking into a mirror to see his opponent’s cards. HFT allows the program trader to peek at major incoming orders and jump in front of them to skim profits off the top. Today it's estimated to account for over 70% of all trading in NYSE equities!

Unlike the NYSE which is only open from 10 am to 4 pm ET daily, ATS trade around the clock and is especially busy when the NYSE is closed, a time when stocks are thinly traded and easily manipulated. No wonder I now find trading the overnight S&Ps easier than the intraday session. The market moves in more or less straight lines.

Tyler Durden notes on the Zero Hedge web site, "As the market keeps going up day in and day out, regardless of the deteriorating economic conditions, it is just these HFTs that determine the overall market direction, usually without fundamental or technical reason. And based on a few lines of code, retail investors get suckered into rising market that has nothing to do with green shoots or some Chinese firms buying a few hundred extra Intel servers. HFT are merely perpetrating the same Ponzi market methodology last seen in the Madoff case, but on a massively larger scale."

The above quote may help explain that when the market drops into or even falsely breaks a "support area" for lack of a better word these computers can spring into a buy mode for no apparent reason and force the shorts out and the longs to re-enter. I spent a considerable amount of time analyzing what "They" do to manipulate markets in my new book, The Definitive Trading Bible Advanced Edition. In today's market, little volume is all you needed to turn the market. The ASTs have become the ultimate dip buyers or sellers when the need arises. WOW! I see this all when I'm in the Chat Room just by reading "price action."

The Present:

We've had this powerful rally from the February lows without any meaningful correction with economic data and earnings all moving in the right direction."If you like last week’s EPS numbers, you're going to love next week," said Art Hogan, chief market strategist of Jefferies & Co. In addition, 83% of earnings so far have surpassed analysts’ expectations. I believe the S&P can get to 1227 before resting. At this level I'd look to take trading profits and start looking for some typical post-earning retreat.

Why? The latest sounding of advisory service opinion by Investors Intelligence tells us we are at extremes of bullishness. We have reached a 3-to-1 bulls-to-bears reading (53% Bulls to only 17% bears). This has happened only 4Xs the last 10 years. These setups, after the correction has run its course, offer traders and investors great buying opportunities. The biggest 3-1 bull sell-off came way back in 1987. Not exactly a time to be super bullish. Given the above games "They" play with their new computing toys, this time may be different. However, somewhere down the line investors and traders will have to face the prospect of weaker consumer expenditures, higher interest rates and taxes eventually. God help us if we ever get a VAT tax; the spending will never end. We’re no different than the PIGS of Europe.

Then we have Greece and the rest of the PIGS. The current Greek bailout may fail to ease investor crisis angst. Trust me this will end bloody, literally. I'm more convinced than ever that there will be a government overhaul in less than 3 months, hopefully peaceful but more likely if the IMF bailout in fact occurs and continues a vicious spiral from financial crisis to sovereign debt crisis to a new banking crisis in all the PIGS. GS is telling clients to buy PIGS bank Credit Swap paper. PIGS bank deposits are starting to flee for safer institutions. After awhile "Government Guarantee" will be meaningless. I am never comfortable with things that are driven by politics rather than fundamentals.

Next week the big show between Goldman's Blankfein and the Senate's 30 year veteran Carl Levin:

The show will be billed as Wall Street’s smartest versus the Senate's toughest that could provide a seminal moment in reckoning after the current financial crisis and similar to like back in 1933-34 which generated new regulations and the SEC. Testimony is scheduled to begin at 10 AM ET, Washington on Tuesday, April 27th. Bloomberg believes the hearing presents a "lose-lose situation" for GS because the firm is fighting a battle over its reputation as well as the law. I expect this will be no walk in the park for Blankfein like he received in front of the Financial Crisis Inquiry Commission led by a California state treasurer in January of this year. Levin's hearing should have serious implications for financial regulations. Companies involved with Levin in the past emerged with one hell of an image problem afterwards. Go Levin!

Maybe just a harbinger of what's to come - the China market was down almost 5% last week and now is down almost 10% YTD while we are almost 10% higher. China led world markets lower in the 2007-08 decline. Enjoy it for awhile longer. Not to be trite, but most of the above problems will only matter when they matter. Right now, party like there's no end in sight. I'm wondering if B.B. and Obama will ever get us off this “sugar” high until it's too late. The next correction will make the last one seem like a mere dip in the road. I hope I'm wrong. I'm guessing we have at least 3-4 years before we have to really bite the debt bullet. By the way, new numbers coming out on Obamacare tell us we're looking at a $300 Billion short fall now. I'm guessing the shortfall will be 5-10X that new number.

NET Trades of the Week in Review:

There is no doubt we got lucky with the GS fraud news giving us multiple 20+ point trading setups. See the final 30" "D" chart for Friday, April 23, 2010. If you were so inclined there was a perfect IRA Tax Trade setup Monday-Wednesday morning using OTM calls for nearly a 3X return. This is the 1st time in 17 years I can remember 2 trades during tax time, one before and one after. I did write that the option trade may be tricky because the trade was broken up by a weekend and no cheap options available for the second trade. However, the range expanded rather nicely.

A second option setup, a put trade occurred Wednesday at the opening when the market rallied back to the year’s highs and the top of the newly formed trading range of 1206-10ish where I recommended puts. The OTMs traded as low as $1.25 only to reach $7.40 the morning of the 22nd or Thursday. That same Thursday morning a call trade setup near the week’s lows could have been entered. The OTM calls went from $1.25 to $5.50! I was trying to scale into the week’s lows and missed the calls.

Friday morning at 9:00 before the opening, the first of seven Alert Email recommendations was sent to buy puts, scaling right into the 1210 highs. The average purchase price was near $0.75, the low was $0.50. Remember the lower the option goes the more we buy at each traunche (think 1-3-5 or any such combination). That way we end up with an average price much closer to the low. We closed the trade out as high as $2.50 before 11:40 am with numerous E-mini hedged profits totally upwards of $250 per put. Remember, we're long a $0.75 put and sold over $2.00.  Add another $250 gives us a nearly $4.00 profit or about 5X.

After exiting the puts I looked at the calls. The ITMs were over $3.00, not our price – too much. The OTMs were $0.15-0.20 and 6 S&P points OTM. I didn't see an expanded range possible so I passed. A number of students in the Chat Room and outside loved this "Throwaway" call price. I won’t say it very often but I was wrong big time! The market continued to rally into new highs. The calls hit $2.80 before closing at $2.65 for a 15X return. See Friday’s C chart, NET Weekly Money Chart 2010-04-23.

I continued with the puts, hedging and parlaying and sending more Alert Emails. After awhile I realized the market would most likely BO to new highs. Had I suggested a simultaneous hedge like last week, long E-minis and long puts on the BO, the trade would have been a big winner. Because we were already long puts and sold our long hedges we had a higher average price, say $0.50 versus $0.20, for the long put. This trade was only a push or breakeven.

I will conclude by saying who needs to trade stocks with option profits like this every week. Keep those cards, letters and calls coming as I read them all. I must say I received a very gratifying call from a student who started with me over three years ago. He has been trading for over 20 years and has never seen any other professional take the news and give it meaning so a trader can use it to make money. He has seen this over the last three years. Yes, I am blessed with gifts to be helpful to a few of you out there. Said a bit differently, I spend almost six hours a day preparing to be gifted. Trading is in my blood and my life. Your kind thoughts make it all worthwhile. For this I am most grateful. I thank you all. I could have packed it in more than once but I'm still here.

Good Trading,

Stan Moore

702.267.0306

P.S. I may be in California next weekend for business so there may be no newsletter next weekend or Chat Room the following Tuesday.  I’ll let the Chat Room subscribers know as to how things develop.

NEWSLETTERS & RECOMMENDATIONS - April 17, 2010

Dear Friends and Fellow Traders,

This was supposed to be the week of earnings and the S&Ps soaring to 1250 but the week was overshadowed Friday morning when the SEC charged Goldman Sachs (GS) with fraud. Most traders and investors shot first and asked questions later. Financials were hit hard in the market selloff. The timing couldn't have been worst for the financial industry as big banks had been aggressively making their case to resist increased oversight on their derivatives trading operations. Obama quickly announced he will veto any bill that does not regulate derivatives and have them trade on an exchange. Finally, one of my favorite naked puts sales, the CME Group, should benefit greatly.

Months ago on 12/24/09, Gretchen Morgenson of the NY Times exposed GS practice of these deals. See Banks Bundled Bad Debt, Bet against it and Won. To date, while appalling, the case has not been made that these CBOs were fraudulent. This week’s hammer blow will unleash waves of “Schadenfreude”. It seems the Germans have a word for everything. This means “satisfaction or pleasure felt at someone else's misfortune.” which seems quite apt here. GS is now the most envied and yet hated company in the world.

No where have I seen anything in the media regarding the GS answer to the SEC charges. I'll provide a few salient points. First, GS answered that extensive disclosure was provided. Second, the risk associated with the securities was known to the two rather large institutional investors who were among the most sophisticated mortgage investors in the world. Third, in normal business practices, market makers do not disclose the identities of a buyer to the seller and vice versa. Fourth and finally, any investor losses resulted from the overall negative performance of the entire housing sector, not because of which particular securities ended in the referenced portfolio or how they were selected.

A class action lawyer commented on a cable network channel Friday that this case is analogous to a client approaching GS asking that GS build him a house where the client would supply the building materials which were highly flammable. GS would then find a buyer for the house and then the client would take out a fire insurance contract and wait for the house to burn down shortly to collect the insurance proceeds. That's nice work if we could get it.

What do I think and what this means looking ahead:
My first observation is why now and why in the middle of a trading day and not before or after hours? Maximum impact! Punish investors! Populism! It's Obama and Main Street against those greedy Wall Street fat cats. Everyone is talking about it now. We've pushed rampant spending, record deficits, health care and the Tea Party right off the front pages. It's officially the golden age for attaching the world's leading investment bank. It's likely other suits will follow.

Last year I was really happy to having Obama as President, looking forward to a breath of fresh air. Instead now I find out Obama is out to control huge chucks of the economy: ENERGY, PUBLIC EDUCATION, NATIONAL HEALTH CARE and FINANCIAL INSTITUTIONS. We even threw in the AUTO INDUSTRY for free. It's hardly a coincidence. I suspect that the SEC’s move against GS comes as Congress is wrangling over financial reform. The complaint, whatever its eventual disposition strikes me as odds-on favorite to yield a much tougher reform bill as appeared as early as this past Wednesday.

Many more reasons for this action come to mind but that principle reason is that if the SEC can get a favorable ruling or a large settlement out of GS, the SEC can use these settlements as leverage in future suits against other banks and financial institutions. This scepter of potential lawsuits will chasten other institutions and potentially bring them to the table to avoid costly and disruptive litigation especially as Friday morning's news had hardly sunk in before Goldman Sachs stock closed down over 12% or a $10 Billion cap hit. Ugly!

There is a rage of populism which spilled over at Thursday's nationwide tea parties. These people may not quite understand what Wall Street and specifically Goldman Sachs does but it seems these Tea Partiers are mad as hell to see the financial sector enriched as the traditional economy crumbles. While the SEC has more independence than most other government agencies the commission's actions are ultimately computed back to the President and it's good press to go after the great Wall Street money machine. Just a reminder - Obama greatly rewards his friends and seeks to punish his perceived enemies. Obama makes former Presidents Richard Nixon's famous "Enemies List" now look like child's play in hindsight.

Summary:
Regardless of the outcome of the GS suit investing in financial stocks may never be the same. Risk is back according to the WSJ's Saturday's Heard on the Street column article, "Goldman's Grief may be Shared". The article goes on the relate, if reform results in stricter than otherwise previously expected legislation surrounding derivatives and trading activities as proposed by former Federal Reserve Chairman Paul Volcker and the Obama Administration, profits may suffer elsewhere. However, the bigger risk for Wall Street is how much the latest assault damages reputations and upends profitable activities. Financials are one of the largest sectors in the market and one of the fastest growers looking ahead into the next few years without further restrictive legislation.

Right now all I can say is we have to watch this case closely. Until then the market just might consolidate or even correct for awhile. NET traders do make more money with a two-sided market than only one.

Meanwhile, the fundamentals continue to look good. The U.S. is no longer the only train pulling the economic engine out there. Asia is exploding so much so that some of the BRIC countries are raising rates. The FED is on hold. Nothing should happen to upset the apple cart before the late June FOMC meeting at the earliest. So party on but be alert.

Trades of the Week in Review:
The good news was there was a great IRA Tax Trade for the 17th straight year which I'm happy to say a few of you caught for a handsome return. Congrats! The bad news, for me, is that I missed it for the first time in 17 years. The market over the last 60 days had not corrected by 1%. Tuesday's action had the market pulling back the usual shallow 10 S&P points but to a great 40% buy retracement at a multi-week breakout level as well. In the Chat Room I thought we could wait and buy the calls on any retest. A retest if this level never happened. The S&P rallied straight-up right into the close and into super INTC EPS number. The OTM 555 calls rallied from $0.85 Tuesday morning to a high of $5.60 Thursday afternoon from a 5X return versus a normal 2-3 bagger.

The Tax Trade has us buying any weakness into 4/13-4/15, staying long generally 2-3 days as IRA monies are invested into the Equity markets. See the 30" Friday NET Money Chart of the Week 2010-04-16D. This year sell offs of any size during the last 8 weeks were near impossible to find until Friday.

Thursday afternoon I sent an Alert Email to buy the ATM 555 puts (trading over $3.00 at the time) near $2.00 and scale-in lower as the S&P retested the 1209-11 area a multi-day (MD) and multi-week (MW) Target 2 level from both the 5" and 30" time frames. The puts traded down as low as $2.00 and hit $12.00 at Friday's lows or 6X was possible!

I must say I did send an Alert Email to close out the puts near $5.00 but I recommend buying the 550 calls near $1.50. Again I emphasized the hedging because the market wasn't ready to rally yet. Some of you did hold the puts. Way to go! We lost over 70% of the call price but 2 S&P E-mini hedged trades netted over $400 profit per long call for over 3X returns and more if you parlayed once. Before 12:00 I sent another Alert Email to start hedging with the 545 OTM calls as the 550s were too far OTM.

The 545s calls rallied from a low of $0.65 to $2.30 quickly but pulled back to $0.50 for another long setup. The calls then rallied back to a $1.50 where another Alert Email recommended a sale. See Friday 5" 2010-04-16C chart. Overall I put out 7 Alert Emails on Friday for a record.

I'll count these 2 call trades as my IRA Tax Trade for over a 2X return plus hedging profits which only increased the return. That’s 17 straight winners over 17 years. I truly do not know of a better trade and it only goes long and works well in bear markets too.

Keep those cards and letters coming. I read everyone of them.

Good trading,

Stan Moore
702.257.0396

NEWSLETTERS & RECOMMENDATIONS - April 11, 2010

Dear Friends and Fellow Traders,

Why is 1200 important? 1200 was the last leg down in July 2008 and became initial support if you look on the left-hand side of the daily chart. You further see the market rebounding 10% into September 2008. Then the S&Ps broke 1200 support, experienced a weak rally and from that point it was a near vertical descent in a matter of weeks to the 850 level. Now previous support at 1200 becomes resistance the first time back.

The Outlook:

Given the market’s 70% rally since the March lows someone new to the market might even think there is in essence an SEC ban on all selling. Recently, stocks have risen in over 70% of all sessions for over double-digit gains. Declines were less than 0.5% during the last two months. Mondays are almost guaranteed a 1% rally with all the mutual fund cash being put back to work after the weekends.

Barrons writes this week in the Trader Column - "Let's not even pretend there's any suspense: Come Monday companies will begin reporting first-quarter earnings that will be nothing short of great". Analysts are penciling in a 37% rise in first-quarter profits versus a rather weak '09 quarter.  The reporting season will lead to blowout year-over-year comparisons for many firms.

The only real question we have to answer is will investors be looking for more?  Even if the earnings come in much better than expected will investors who have bought the rumor now be looking to sell the news. We know the S&Ps have seen six straight weeks with a gain of more than 6% over the stretch. The economic data is improving by leaps and bounds. Still the last two rather good quarterly releases has seen investors taking profits.

There is even more good news expected from the EU. Over the weekend investors are hopeful of news for a German below market rate interest rescue plan. Bloomberg writes: Germany said to accept compromise on loan to Greece.

Just released news on Greece:

Eurozone finance ministers agreed to specific terms for possible aid for Greece saying they would provide up to €30 billion for the country in the first year of any support program. The finance ministers agreed Greece would pay an interest rate of around 5% for a three-year loan program, according to European Commissioner for Economic and Monetary Affairs Olli Rehn. If there ever is a time where the markets should rally through 1200 and into a larger resistance near 1225-50 this is the time.  Thereafter, let the profit taking begin.

What can go wrong? But it won’t happen in the near future.

I truly believe the biggest geopolitical risk, Iran, is off the table. Obama and Clinton appear resigned to a nuclear Iran. Israel will not attack. I cannot believe how Obama treats our friends and welcomes our enemies.

Bloomberg in a commentary entitled the next "Big Crisis" is unfolding in the muni-bond market: The author Joe Mysak touched on some of the problems. I'll sum up his comments with one rather bleak thought: he believes that conditions in the municipal bond market almost match exactly the conditions that existed prior to the blowup that sparked the worst recession since the Great Depression. Barron's had a great piece as the lead story a few weeks ago. This will only matter when it matters.

I have some further thoughts on the "Greek Tragedy" playing out. Right now markets (investors) around the world are buoyed by a cyclical recovery and have yet to recognize the complexity of the situation. When they do it will also become apparent that Greece is part of a wider and historically unfamiliar phenomenon that of a simultaneous and large disruption to the balance sheet of many industrial countries and represents a significant nontraditional headwind to growth and financial stability. Fasten your seatbelts we're in for a bumpy ride.

To further complicate matters we have two divergent views from equally intelligent analysts on interest rates through year end. The two best economic forecasting teams of the past two years couldn't disagree more about where treasuries will go next. Morgan Stanley believes the ten-year yields will rise to 5.5% this year, the highest estimate among top treasury dealers. Goldman Sachs, on the other hand says yields are headed down to 3.25%. You now understand why I have no position in the Bond market long or short. We won't know who's right for awhile so enjoy the ride.

Trade of the Week in Review:

Overall the market was rather quiet in front of what should be an explosive week of news ahead. Our best trade of the week was a put trade. An Alert Email was sent out before the Friday opening. I suggested buying the 545Ws under $2.00. The puts traded briefly at $1.80 on the gap-up opening. I mentioned in the Chat Room I was bidding $1.75 so I missed the 1st trade setup and canceled the order.

Before 10:00 AM and into the next rally I sent another Alert Email suggested a second put with a buy now. The market rallied rather quickly. I started buying puts small around $1.40 and finished averaging in at $0.95. The strategy is to start small and buy more options at each tranche buying lower, i.e. 5-10-15. This way you are profitable the minute the market turns in your expected direction. The trade was put on in less than 10 minutes and was over in 30-40 minutes. I mentioned in the Chat Room my average price was $1.15. I scaled-out selling some as high as $2.50 on the bid. My average was $2.15. Great way to start the day in what I said would be a rather narrow trading range day. See the linked NET Money Chart dated 2010-04-08, Friday’s 5 minute chart.

Later I sent another Alert Email to re buy the puts. By that time the trading range was obvious the puts never traded back to the lows. The puts did hit $1.10 but only sold down to $2.00. I mentioned later in the Chat Room near 3:30 a potential Simultaneous Hedged Trade. I recommended buying the S&P E-mini futures on a breakout (BO) of 1189.50 and scaling into puts. We did not want to buy the puts first but only into the BO they'd be $0.15-0.20. This is the perfect throwaway protection trade because the puts increase in value nearly point for point should the BO fail.  Yet the E-minis could run unlimited up but we'd only lose $0.20 or so but make $50 every point the E-minis went up.

Had a NET trader gone long 20 E-minis and long (short direction) 25 puts the result would have been nicely profitable. The trader loses $500 on the puts yet makes over $100 per E-mini or $2,000+ in less than 40 minutes. The options could have been traded in much larger quantities. You can do the math.

This week we have an IRA Tax trade setup for all NET traders. Be alert!  I've been teaching this trade for 16 years and the trade has averaged 3X returns in 2-3 days. No losers. It's now in The Definitive Trading Bible going on 3 years.  All you need to do is to register on the New Era Trader web site or call me to get the details.

Good trading,

Stan Moore
702.267.0396

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NEWSLETTERS & RECOMMENDATIONS - March 21, 2010

Dear Friends and Fellow Traders,

By Sunday night, by hook or crook Obamacare will be here. Either the market doesn't care or it thinks this is now no big deal. Wrong! This bill vastly accelerates the march to a totally state-driven health care system, Obamacare is really about who controls the country's medical services. Next the Dodd Financial Reform Bill if passed in its present form will give regulatory control of the financial system to the government. Add to this if there is time before the November elections, we will get Cap and Trade, Check Card (Walmart finally gets unionized) and a major immigration bill legalizing all illegals. The later will completely overwhelm medical care as we know it today. I feel if this movement goes unchecked this is the end result. I hope I am wrong. The market is not prepared for this chain of events.

I believe this is one of those times where the markets get it totally wrong like they did with Sub Prime back in 2007. Right now, I don't expect markets to price in these immediate concerns or the strong structural headwinds we will face next year as most of this is currently out of today's mind set. Today, investors have only thoughts of the liquidity swashing through the system and markets driven by strong technicals in what most believe is a normal cyclical recovery.
Presently, markets are only focused on the April 2 Jobs Report. Funny, the report is scheduled to come out on Good Friday morning when our stock markets are closed. Think the government will want to release the data Thursday? Otherwise that will be one long weekend to digest the numbers. I'm hearing job numbers could be as high as 300,000 with 400,000 the whisper number. I'll have a better idea how to trade this expectation as we get closer. Meanwhile I believe the market wants to rest until we get into earning season in a few weeks.

The markets have broken through the January highs. We have experienced one wow of a rally. We have rallied about 50 S&P points over the last 20 days. That's 2.5 points a day. This lack of volatility is killing active traders. Most of the big money is sitting and waiting for a better setup to trade.

I have learned over many years that over 90% of the time markets oscillate in tradable ranges while 10% of the time a good NET trader/investor can make a killing. Again, don’t confuse a bull market with brains. Since most investors can't or don't have the necessary skills to benefit they can only perform if they are in the markets when markets move. Therefore, investors must be invested all the time and hoping. NET traders are fortunate because we have the skills and knowledge to take advantage of those 10% times either though the wide-ranging and special financial instruments and techniques. For example, the use of cheap expiring options or a very good fundamental understanding of markets. Right now I and other NET traders are out of the equity markets except for BTIM. I am watchful, waiting and actively trading Thu-Fri cheap expiration setup. So far I've counted 6 ten baggers this year. We're happy with just pieces of them. Then again we have one additional arrow in our quiver. NET Advanced students know this as a great time for "Hedging and Parlaying".

Trades of the week in review:
There was little to do early in the week but trade E-minis for a few points each multiple times a day. Thursday afternoon I put out a call buy Alert Email for the OEX 530s under $2.00. The calls traded down to $2.45 and closed at $4.00. On Friday morning, the call opened at $4.50 into a Tenet #3 sell. I related in the Chat Room that the first 10 minutes were a further Expo week mark-up for the expiring calls and for "They" to get short into the retest of the year's high. "They" would lose money selling calls this month but "They" never get mad they get even. By late Friday the market dropped 15 points "They" got even by selling S&Ps or shorting other indexes.

Everything happened in the first 5 minutes. Personally, I missed the put trade and the E-minis. Things just happened too fast. A few early callers bought the $0.50 OEX OTM puts against my wishes. I was trying to recommend the 530s ITM put under $2.00 but a trader would have had to been in before the opening to get the $1.60 low price. After that you were buying put offers (or paying too much). The puts did hit $6.00 two hours later. In this case, taking offers doesn't look too bad in hindsight.
I tried to send out a sell E-minis or buy puts (sell/buy) Alert Email out after the market gapped (at the opening) higher than the overnight high. But the rally failed immediately and went straight down for the first 20 minutes or so. A few students in the Chat Room got short S&Ps on the opening. Those OTM puts went from $0.40 to $1.70. Congrats out there!

After 12:00 with the market stabilized near 1152-54 just above the 1150 breakout major support area, I sent an Alert Email to buy the same 530 OEX calls under $2.00 again with the usual caveats about having to hedge the market. I further noted that the market wasn't ready to rally until later. The first put trade under $2.00 occurred at $1.70 when I related in the Chat Room I was starting to buy small. I averaged into more at a $1.00. All this time I was selling S&Ps and using the profits to buy more calls. By 1:30 the market was eroding premium fast in the 2-3 point range occurring over 2 hours. I was still buying calls down to $0.50 with my hedging profits. I wrote on the 2:00 intraday "B" chart as long as 1150 holds into the late sell-off we should get a strong closing rally. At one time near 2:30 I was long 250 calls near $0.90 and short 200 E-minis over 1155. I started to exit calls near $1.00 into the 2:30 rally at the 40% intraday sell level. One of my students in the NET Room remarked “I was building a pyramid.” Inferring I was building an ever larger option trading position after starting with only 10 option contracts at $1.70. Restated, I was parlaying with my hedging profits.

I then told the Chat Room we can expect one more retest into the lows, cover and then we should get long. After the market sold off, I covered some of my 200 S&P shorts as low as 1151.50. The market bottomed at 1150.25.This area, previously mentioned on the intraday “B” chart, was the perfect RT/F and EOD long trade setup. My short hedge E-mini trading made a small killing. However, I couldn't sell the calls as they were OTM by a $1.50 and offered at $0.05. Still knowing a rally was coming, I chickened out and sold the calls at $0.10 and regrettably left $8,000 on the table when a few minutes later they closed at $0.53. The noted trade was good for 6 points into the close. Cie la Vie! See attached NET Money Chart 2010-03-19.

The Breakout Trade of these last 2 months:
In last week’s newsletter I noted that I thought BTIM looked finally ready to breakout of a multi-month triple/quad top 60% Fib sell area. Click here to see 2010-03-19 BTIM daily chart. I even suggested profit taking on a portion of one’s investment into this expected strength. Trading forces were aligned. I detected strong buying in the face of warrant arbitrage. I was buying BTIM warrants all week. Friday, March 12, was the highest close in some time, BTIM closed at $5.44. Monday morning I tried to buy 10,000 BTIM common at $5.50. I didn't buy a single share and we never saw that price again. Mid-morning NASDAQ and AMEX stopped BTIM trading and for news.

On Monday, BTIM jumped to $5.92 but was stopped at $5.80 after trading only 120,000 shares. Since trading had stopped, nothing occurred all day until a company press release before the open Tuesday. Price broke sharply higher hitting $8.42, a Target #3. I sold all the way up. I guess I started to buy back a bit early. BTIM closed back at the larger BO level and a 60% Fib buy level at $6.65. For the week, BTIM was up very nicely.

I sent out a special BTIM NET newsletter (email) to all of you Wednesday with all the links and info I had. Regenerative medicine is here as announced in a peer-reviewed research paper. This news was great news for BTIM but any deliverable product is still a long way off in the US but should occur sooner in China. As I’ve said before, stem cells are for real big time!

Biotime rallied almost $3.00 or a whopping 60% on the news. The $3.00 BTIM warrants almost doubled. Later in the day the stock sold off almost $2.00 and this action is not normal. What have I missed and what have we learned here? First and foremost with the large and rapid rise the BTIM shorts were killed. The shorts had to cover their position by buying back the ever increasing price of BTIM stock. Second, price went higher than it should have on the news because SEC regs now have the shorts forced to buy-in immediately. The brokerage firm executes the purchase and the short trader is informed after the fact. Short stock traders should be alert to this new risk. As you may recall over 10% of the BTIM float or about 1.8 million are short. Short sellers, normally a large buyer on weakness, were taken out of the buy market. Therefore, the stock pulled back further than it should have. In addition a lot of weak players got buried as well. Earlier in the day Dr. West was on CNBC again, the first time at being listed on the AMEX. Sorry Sport. NET traders only buy the rumor and sell the news. BTIM Trading Summary When trading BTIM into announcements we should all be aware of the open short interest. The larger the short position is the more selling we should do into strength. Normally, I trade 10-15% of my total position and wait a bit longer to replace and/or increase the investment position after the announcement. Had I know what I know now I would have sold 25-30% of my stock. My only problem should be that the stock continues much higher and I’m left holding only 70% of my original position. Would you feel sorry for me? My ratchet stock trading style allows the taking of the stock profits from selling high and buying lower to increase my profits and to increase the number of shares owned on re-purchase. This style of stock trading is akin to hedging parlaying with options. This is a game that only small traders can take advantage of to build capital to become a large investor.

The good news is that BTIM is clearly #1 or #2 in the stem cell space and now more investors then ever will be looking at BTIM. There will be more announcements and more research grants. Testing, maybe even in humans, maybe sooner than not overseas. The list grows daily. Given the excitement currently ahead for stem cells, NET traders can now own BTIM for what can be viewed as the price of a 10-year call option (on the stock).

A very large BTIM shareholder asked me recently why do I even bother to ratchet trade this stock? He told me to relax, sit back, enjoy the ride, that BTIM is only just now pulling out of the station and we have a long ride ahead. I once told all of you just a short while ago. If we are to stay and live in the new Obama world we have to get really rich. BTIM, other special situations as they occur plus option expiration trades over time will make us extremely wealthy. A personal motto: Living well is the best revenge. New research says you need $2M+ at retirement to maintain your current lifestyle. NET can help.

Keep those many cards and letters coming. I read every one.

Good trading,

Stan Moore
702.267.0396

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NEWSLETTERS & RECOMMENDATIONS - March 12, 2010

Dear Friends and Fellow Traders,

The S&P market topped out on 1/19/10, declined almost 10% and quickly moved to erase those losses over the next 5 weeks. I did say this would be the year of the trader with the market indexes going nowhere while individual stock pickers, traders and the like would do quite well. Recently I heard the phrase "fade and trade". I still like buy the dips and sell the rips especially with cheap OEX options.

This week we should get the answers we've all be waiting for. The market abhors uncertainty. Early next week Senator Dodd will re-introduce "His" financial reform bill versus forwarding a hoped for bipartisan version. I understand that markets may not react well to his version of reform.  We learned the "Sorbox" only placed costly new regulations on companies that did nothing to prevent another Enron. See 2,200 page report on Lehman last week. Sounds like another Enron to me. Regulation, while helpful, will never prevent fraud.

Shortly thereafter Ms. Pelosi will set a vote for "Obama Care". Passage looks better now because of a deal for the final completion of the government takeover of student loans will be submitted for passage at the same time. Big government Dems just love another takeover of business from the private sector.

Right now the stock markets are extended with very few good entry points. Stocks are vastly overbought and far from cheap. Liquidity is everywhere. Deals and rumors of deals are rampart. The problem is the market is being fueled by massive trading in highly speculative ideas and not the names that should support the market going higher in the near term. Therefore, most portfolio managers (PMs) are under performing making a trying year again for buy and hold PMs. The lack of PM performance should do wonders for our EOM and EOM markup trades.

The good news is that the M&A calendar should explode over the balance of 2010.  Buyout firms are exploring financing to do $5-10 billion deals. They have the equity money and are dying to lock-up those huge management fees for the next 5-7 years. M&A activity should limit any decline to less than 10% in most markets.

A review of some lessons from an old guru Bob Farrell:
From time to time it's always good to look back and review lessons from past greats we have or should have learned over our investment career s as long as we are willing to learn from our mistakes.

1.    Markets tend to return to the mean over time.
2.    Excesses in one direction will lead to an opposite excess in the other direction.
3.    There are no new eras - excesses are never permanent.
4.    Exponential rising and falling markets usually go further than you think.
5.    The public buys the most at the top and the least at the bottom.
6.    Fear and greed are stronger than long-term resolve.
7.    Markets are strongest when they are broad and weakest when they narrow.
8.    Bear markets have three stages.
9.    When all the experts and forecasts agree, something else is going to happen.
10.    Bull markets are more fun than bear markets.

Personally, I'm not so sure of # 10. I always cry when bear markets end. Somehow down profits come almost 3X faster than up profits.  We can thank Doug Kass for reminding us of the lessons learned from Bob Farrell, one of the great technical analysts of my time, who spent his entire career with Merrill Lynch.

Summary:
Here is pretty much what I've learned especially after 2008 that may be added to the list and probably caused a greater decline than should have taken place because all financial firms believed the government would always bail them out and will best be remembered as the "Greenspan Put", the Fed will act to save the markets and the economy when needed.

The hubris of these firms caused them to believe that government cannot withstand much pain in the economy or the financial markets. The Fed and/or governments will take enormous risks in such interventions especially if the expenses can be conveniently deferred to the future. Some of the price tag is in the form of back stops and guarantees whose cost is almost impossible to determine. i. e. the black hole of the GSEs (Government Service Enterprises) like FRE and FNM and even AIG.

I believe the above will, over time, prove to be false. However for the present, investors believe and even governments believe that with little cost governments alone can rescue markets.  At this time Obama and senior Dems believe that all crisis are to be used to give government greater control over the economy and our lives. Their mantra is "don't waste a crisis or government can do it better." Looking ahead should tell us that we are probably doomed to a lasting legacy of government tampering with financial markets and the economy which is likely to create the mother of all moral hazards.

This government, as are all governments, is blissfully unaware of the wisdom of Friedrich Hayek (1899–1992), an Austrian-born economist and philosopher known for his defense of classical liberalism and free-market capitalism.  Friedrich writes, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." See the lead Barron's article this week, The $2 Trillion Hole, promised pensions benefits for public-sector employees represent a massive overhang that threatens the financial future of many cities and states. I'm adding the government hole is at least 15Xs this number. Welcome to the next Greece big time.

Trade of the Week:
The S&Ps have rallied, I believe, 10 straight days. Wow! Thursday, I wrote on the final "C" Intraday Chart we'll look at puts again for tomorrow only options will much cheaper and they were. The US market gapped up to new multi-year highs at the opening Friday morning. In anticipation of the gap, I sent a pre-market Alert Email suggesting the usual NET hedged strategy.  Specifically, build a long cheap put position into rallies and buy S&Ps on weakness to hedge and hope the market (after the puts are paid for) blows out to the upside. We can hope can't we?

The 525W puts traded as low as $0.45.  The market early on gave indications of being range bound so I closed out my hedged position rather quickly in the Chat Room for a profit after the puts hit $1.55. That’s 2X in about an hour! See attached NET Money Chart 2010-03-12.

Shortly after closing the put trade, I sent another Alert Email to use the day's extremes to buy even cheaper options later in the day. The longs were trapped on the false BO (breakout) up while there was a rather large support area near 1140-42 that should contain the downside.

The market never made it back to the day’s high. However, near 3:30 PM the market was in the process of testing the day's low creating a great high probability RT/F EOD buy setup. I noted in the Chat Room we could start to scale-in to the 525W calls starting at $0.35 small and scale-in bigger if price went lower. The OTM calls were only $0.50 and were the perfect throwaway long for a rally back to the morning break down level. I could see the calls going back to a high near $0.90-$1.00. The calls hit a low of $0.10 a short time later. I had a nice long OEX position at $0.22 average. Had the OEX not stopped trading at 4:00 PM the calls would have closed over a $1.00. If hedged as I did into the rally the trade only lost ½-3/4 of a point on the short E-minis.  However, the calls hit. I believe at a high of $0.80 and closed over $0.50. Yes, the call was the perfect throwaway long trade for a nice double at least.

BTIM Update:
BTIM closed at a major breakout/resistance quad top at a 60% daily chart sell retracement. With any luck a BO could send the stock over $6.00. At $6 I would button-up some profits and look to buy BTIM back when the updated warrant prospectus becomes effective with a $0.30 discount on any early warrant exercise. Early exercise is done at $1.70 for 50% of the warrants versus a $2.00 exercise price on 10/31/10.

Remember buy the dips and sell the rips. 2010 is the year of the trader.

Good trading,

Stan Moore
702.267.0396

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