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Author: Mike Celeste Editor: Tony Ponzo March Circulation: 7153

Stat Sheet Week Ending March 27th 2010

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow+108.0+1.0%+422.0+4.0%
S&P+7.0+0.6%+51.0+4.6%
NAS+21.0+0.9%+126.0+5.5%

Highlight of this past week: CLF made a nice 5.7% profit in 1 day.

In this Issue---
Options---
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A couple of reminders of things that should be checked on before putting in an option order. You are starting to hear more about volatility via the VIX index. It is at a very low number and that indicates there is still room for the market to rise. However, it also indicates that stocks are not trading at their normal Average Trading Range (ATR). That is the difference between the high and low prices for the stock for a particular period, usually in our case, the daily trading range. The options will fluctuate more when there is more volatility and since that is down, we see that the prices of the options are not moving much, either. We like volatility in options, as we believe our strategies do well when option trading helps move the price. It's odd to see a stock at the same price as an hour ago, yet the option is a different price. That is because the volatility has changed during that hour.

Also, we need to pay attention to the volume in an option that we are interested in. You will see that a low volume in an option results in a wide spread between bid/ask, which makes it difficult to decide on an entry point. GS, for example, has a good volume in their options and bid/ask often shows only a cent or two between them. Other stocks, with low volume, might have a 50 or 60 cent spread (or more) between the bid/ask. We don't like to get into the wide spreads, but sometimes it is still possible to make a decent play, even if that is the case.

Momentum Plays---
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We had a pretty good week with three wins and one loss. This Week's Results. But that is low in terms of number of plays and two of the wins were close to break even. We have mentioned a number of times recently that this lack of plays we believe is due to the very low volatility in the market which equates to low volatility in options as well. This also means larger profits are harder to come by. Our plays are based on strong momentums - up or down - and it is harder to find those strong momentums these last several weeks. To add to these lack of plays is the fact that earnings season is now coming to an end for this quarter. But that issue will change by mid April when the new earnings season gets in full swing. The issue of volatility may be one that hangs around awhile. We have gone through all kinds of markets in the last two and half years since the crash, all with their problems. When the market finally turned back up last year, we thought that maybe we would be coming back to a more normal trading environment. And actually, the second half of last year was excellent for our Momentum plays as you can see by the past results of 2009. As the market climbed last year, it retained some volatility. But this year, although we have continued the climb up, it has been a slow moving climb with many days basically flat. This too will eventually change and we believe it could start in before mid year. We'll just have to play it day by day. In the meantime we will still have plays. They'll just be harder to find. But that is our job.

Indicators---
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We still stayed away from the signal to buy some SPY Puts, and it showed to be a pretty good move. We did get a bit of down pressure in the latter part of this week, but we did not get a Put signal to go along with it. There needs to be confirmation that the relentless move to the upside has been halted, or at least slowed down quite a bit.

The Economy, The Markets & Commentary---
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The market strength thru Wednesday has been a sight to behold--and you don't see it very often. It was mentioned on CNBC that this stretch of strength to the upside was last seen in 1996---that's 14 long years ago. There were also comments about the low volume and the volatility being concerns for stock prices. Apparently we are not the only ones finding difficulty with short term trading, as the boys in the pits are complaining about the same thing. We continue to tighten up our criteria and have found that we are at a better comfort level at this time using Straddles and Strangles on stocks that have met our standards. Those standards include newsworthy stocks, earnings, and a higher than normal Average Trading Range (ATR). If a stock moves enough during the day, that allows us to make entry and exit points that leave enough room for decent profits. If the stock moves only slightly between high and low for the day, that doesn't leave us enough room for those profits.

Well, we got our Health Care Bill passed and signed, and now we are told it will take years to implement it, so it is difficult still to know what is in it and how it can affect our average citizen. It has been stated that it will save many billions over 10-20 years, but how that is possible to determine is beyond us. They can't figure out what is going to happen, with correctness, in the next 6 months. Proof of that has been the many recalculations and "adjustments" that keep coming at us. One article did point out that even if the federal government sees savings, the states have been set up to absorb more of the costs, and that is going to cost some states 2-3 billion more in costs.

Re--The interesting thing about Health Care and how it affects the markets-- we see that the stocks in the Health Sector have been at or around highs. If everyone has to get insurance, that would mean that a lot more money would be going to the insurance companies and also the medical service doctors and facilities, because people that didn't go before will now be able to afford to go. It would also mean that healthier people that dropped insurance will now be forced to pay in, and that will help balance the books. On the other hand, doctors will have their reimbursements cut and most likely have to wait longer for payments according to what we here from doctors we know. They said they would most likely discontinue their practice if they have to take on more patients but at lower fees and longer payment cycles. Also, from reports we have seen, it appears that many companies may be getting unfairly hit with costs, such as the case stated by Caterpillar and Deere today. They have announced the new Health Care Plan will cost them hundreds of millions a year in profits! One smaller company on CNBC complained that they have analyzed that this will cost them an extra $7.5 million dollars a year. Their entire profit last year was $9 million. They said they will have to make adjustments such as cutting employees and or passing costs on to their customers in order to do better than break even. It is difficult to say whether this plan is going to benefit America or destroy America. Time will tell but whatever happens, let's hope our politicians are flexible enough to make adjustments along the way if needed to keep things balanced in a fair manner.

Earnings will again come to the fore next month, but not in any great numbers until about the middle of the month. We welcome these earnings as we believe that we have some good strategies developed that are going to do well during the earnings season.

Bank of America announced potentially big news for mortgage holders. For those holders that are far under water, where the value is quite a bit less than what they owe, this group should be happy----if it happens. The bank is proposing forgiving a good chunk of the mortgage debt. Whether it will be enough to allow people to still make payments remains to be seen. We have just read very preliminary details and there is much more to come---including questions about whether other banks will do something similar. Maybe they figure it is a good gesture to write down the debt rather than foreclose and go thru all the expense that goes with foreclosures. One floor trader on CNBC was furious with this offer because he thought why shoud we do anything right? If you can't cut it you just get bailed out! Mortgages, Greece, billion dollar finance companies, etc.

Stay tuned.................these are interesting times..............always some deeper depth is developed, or something new comes to the head of our priority list..

Today's Thought---
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Take a deep breath, it calms the mind----then take another (This is really good for high blood pressure)


Mike

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