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Market at Crossroads

9:00am (EST)

“The Dow and S&P 500 saw their 8-week win streaks snapped as the bears pushed multiple layers of support throughout the week.  However, after 4 days of selling pressure, the bulls rebounded big time on Friday to nearly grab the weekly win.  Their efforts fell short for the most part as the major indexes finished the week lower but Tech managed a small gain and the VIX closed back below 15.

Much of the pullback was based on taper tampering as strong economic news had the talking heads predicting a December cut by the Fed but on a technical basis it was simply a back test to support.

We mentioned all week the action was bearish despite the bullish headlines and the official estimate for Friday’s Nonfarm Payrolls report had been for a gain of 185,000 jobs.  Most of the suit-and-ties were penciling in a gain of over 200,000 coming into the week but some whisper numbers were upped in the 250,000-300,000 range.

The thinking on Wall Street was a number north of 250,000 would been an automatic guarantee for a December QE (quantitative easing) taper announcement.  With a gain of “just” 203,000 jobs and slightly above estimates, it was the perfect number.  The unemployment rate dropped to 7%.

As the taper talk continues, we have said since the summer that we did not expect the Fed to make a move until MAYBE December and we have been right so far.  This is one of the main reasons we stayed bullish in October and November.

The next FOMC meeting is scheduled for Tuesday, December 17, and there will be a number of Fed Heads speaking throughout the week starting on Monday.  This will likely lead to some volatility and possibly a continued trading range into next week as every word they say will be debated.

We now do not expect the Fed to reduce QE until March as they have said they want to see unemployment under 6.5% and jobs gaining over 200,000 a month, consistently.  When the holidays end there will be job cuts and we haven’t even mentioned the zombies.  We feel the Fed wants to be 100% certain the economy is rebounding before they make any cuts to the $85 billion monthly infusion but with Bernanke on the way out, there could be a curveball.

The bulls did well on Monday/ Friday closes in October and November and although the Dow ended higher this past Friday, Black Friday along with this past Monday’s pullback was the first lower Monday/ Friday close since late September.  For those of you just joining us, positive Monday/ Friday closes usually means money is moving into the market while lower M/F’s could signal cash is moving to the sidelines.

The deadline for a budget deal is this Friday and the event could bring added volatility.  The zombies gave the budget to a bipartisan committee after the government shutdown to come up with a solution that could be passed by both the House and Senate.  While there is chatter a deal is going to be reached, we wouldn’t hold our breath.

The Financial stocks held up well to start the week with some names hitting fresh 52-week peaks.  Most of them pulled back as the rest of the week played out but held support.  We have mentioned this sector needs to show strength into yearend if the bulls are going to push higher ground as they have lagged the major averages all year long.

The Financial Select Spiders (XLF, $21.39, up $0.29) closed below their 20-day MA on Thursday but bounced back on Friday.  The XLF has not fallen below $21 since mid-November so a close below this level needs to be watched as it would get the 50-day and 100-day MA’s in play.  A close above $21.65 will lead to a breakout to new highs and possibly a run past $22 over the near-term.

XLF121513

A retest to support would also be good as talk of Friday’s gains not holding would make the rounds and flush out more traders.  The talking heads will denounce a Christmas rally isn’t coming and the Wall Street pros will be looking to take early vacations.

As long as support holds, this would be the perfect setup for new highs by yearend as the small-caps strengthen and the Christmas rally officially begins.  Remember, the Santa rally, if one comes, covers the last 5 trading days of the year and the first two in January.” (from 12/8/2013 Weekly Wrap…)

The bears followed the same game plan last week as the prior week as they kept steady pressure on the bulls while taking Friday off.  The bulls held support for the most part but some damage was down as a test to the 50-day MA’s (moving averages) were pushed but overall the market is behaving just like we expected.  (continued…)

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    “Rick – Wow what a day! I got in at the Dendreon calls at $2.25. Thanks to for your advice. I appreciate that. This company has a lock on this type of therapy and no one else in the world is close. Kind of reminds me of the type of companies that Peter Lynch and Warren Buffet suggest that investments be made in. Companies that can build a moat around their business model, that allows them to charge a premium for their product or service. In other words - a monopoly.” GREG

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    “Hi Rick, thanks for the encouragement to play the dendreon calls! did freaking great! Got in the first lot at $1.44 on 3-24-09, sold at $2.45, 70% not bad. Bought it back at $2.30 on 4-7-09 closed out on 4-14-09 for 454% gain! Wow! I love it when that happens. So, thanks the encouragement to get back in when others were saying sell, sell, sell. Keep up the good work.” GARETT

    “Rick – Thanks for Dendreon – it has made all the headlines today! I missed on RIMM earlier, but I’ve been holding onto DNDN calls since 3rd week March. Of course today it all paid off today, as DNDN rocketed up.” TERENCE

    Jan. 31 2012
    Rick, new member...Studied all current trades, did some chart work,picked ZNGA, PEP, MGM...Sold on Feb. 2 for $3600.00 profit...Cost for 1-year membership to your newsletter was less than $1000.00..All I have to say..Thank you. John H –

    3/18/11
    Rick, I purchased 10 contracts of the Nike March 85 puts Thursday afternoon for $2.00. Thing is, I was upset because the puts went down to $1.60 or so before the market closed. Well, needless to say Nike didn’t impress Wall Street and when I turned on the computer this morning the puts were worth $7.10! Sold them for a $5,100 profit!. Thanks again, you are the MAN. Chuck J-

    2/3/12
    Hi Rick,

    I will start off with a thank you for your time and dedication to all
    the research you and your team commit yourself to. This is not me just being excited about the profits I have accumulated aka (bank) ! You have helped me get back to the passion I had of researching stocks/options. Keith N-

    Hi Rick,

    I want to share my great results on GMCR. Based on your comments on February 15th, I bought 20 options at $0.28. They closed today at $7.00, which is a 2,300% gain. My $560 dollars turned into $14,000 in less than a month. In decades of trading, this is my single best trade ever. Thank you! By the way, the Dow was down 228 points today and I could care less. What a great trade. It proves the amazing power of options. I am so grateful for your service, which calls it straight all the time, your options trading manual, and most of all, your amazing skill
    at finding winning trades. I have attached a copy of the trade from
    my brokerage screen.

    Hi Rick,

    Wow!! my account it up 70% since i joined last month and market is going the opposite direction. Really appreciate your service. I just wanted to drop a note to say THANK YOU. Hope to be with you guys for a very long time. Mel

    Rick,

    Great call on Fosl I bought the may 120 puts for 3.70 yesterday morning just sold for $32.00 today
    Keep up the great work
    Thank you, Henri

    Rick –

    I bought 10 Deckers Outdoor (DECK) May 55 puts at $0.50 on 4/26/12 and sold them on 4/27/12 for $1.65. I made $1150 in one day. Thanks. I knew something good would happen sooner or later.
    HOW THE HECK did you know Green Mountain Coffee (GMCR) was going to go down 20 points???!!!! I bought 10 of the May 35 puts at $0.49 and then 5 more at .30. I sold them at 5.80. Thank you again.
    You have made a believer out of me. Alan

    Rick –
    I have only been a member for about 6 weeks but I have done well on most of the trades. My first two were QQQ and SPY a month ago and since then I've gotten into the groove and been doing well.
    I try to execute the trades that you recommend as soon as you send them out, sometimes I can't and I miss the Entry price. However, sometimes when I miss the Entry, the price goes down and I get a better price.
    That's exactly what happened with GMCR.
    You recommended it at around $.81 I think, but by the time I got to it, the price was $.27. I bought 100 Puts on Wednesday May 2, 2012 and sold half of them 24 hours later at $5.95 for a nice 2,203% gain. As per your recommendation, as GMCR went above $30 I sold the remaining 50 Puts at $5.50 for a slightly less 2,037% gain.
    On average that one trade netted me a 2,120% gain, entirely based on YOUR recommendation (and a little bit of luck). To put this in real terms, I risked $2,700 on Wednesday and pocketed $54,550 just 24 hours later.
    So uhh, let's do that again real soon!!
    Feel free to use my name. The tax guys have me on speed-dial already anyway. Dennis

    Rick:
    That was awesome on your GMCR pick, I know how risky it can been holding into earnings but you pulled it off. 
    I just started my autotrading with you today and am in on your QQQ play. I look forward this service. 
    I have a busy career and I have tried to follow and trade throughout the day and found it too hard. I hope you continue to have a great year, I plan to go along for the ride. I am starting slow but will pile more in once I have secured some profits. 
    Keep up the good work your trading has been spot on. I am sure you paid your dues to get this point in your career. Anthony

    Rick:

    Great call on GMCR!  I have been trading for about 15 years actively.  This may be the best trade I ever made.  Got in on Monday, April 30 and the stock was up from when you recommended it.  It went up further after I got in.  Here are the facts:
    Monday, April 30th: Bought 15 June 37's at $1.25= $1900 approx
    Thursday, May 3rd: Sold 15 June 37's at $9.30=$13,950
    Gain for the week: $12,050.
    I understand you will not get them all right.  It’s important to ride those winners and as you could tell from my selling price, I sold when the stock went to $28.10, so left a little on the table.  Who can complain.
    Keep the suggestions coming, looking for another jump on your FSLR, one that I have been riding very hard.
    Best regards, Bob
      

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