It’s as if the Dubai news never happened…
The market picked up more momentum on Tuesday, as the Dow added 126 points to close at 10,471. We mentioned in the Weekly Wrap there was evidence of “baby bulls” when we were talking about Friday’s market correction…
“The Dow was pressured right from the jump and at one point sank to a low of 10,230 before finishing the day with a 154 point decline. We had factored in a drop to 10,100 but during the panic, the “baby” bulls stepped-in and lifted the market. The Dow had started the week at 10,318 and we ended at 10,309. The fact this level held while Wall Street was on vacation was impressive given the curve ball we got.” (END)
If you remember, the first reports of the Dubai World debacle had the debt at $60 million and whispers were calling for as much as $80 million in the hole. The fact that they are working to restructure a smaller debt ($26 billion) has put the event in Wall Street’s rear-view mirror.
In fact, the bulls pushed the Dow above 10,500 for the first time since October of last year. We have been calling for Dow 10-8 and given the trend it seems like that target could be reached.
However, let Friday’s “warning” ALWAYS be a reminder that you should try to have both call AND put options in your portfolio. If you will look at all of our trades from 2009, month-to-month, you will notice we like to follow this rule. Sometimes we get caught too and we were stopped out of some nice trades but don’t let these “events” scare you.
We want momentum, either up or down. In other words, we want action. The bulls have been pretty much unstoppable since March and we will top out at some point. Until then, all we can do is play the trend because after all, the trend is your friend…
The dollar continues to get pounded like a porn star and at some point, it too, will rebound. The current trend has been a weaker dollar and a higher stock market. This pattern that has played out for months and we will have to wait and see at what point this doesn’t work anymore.
And Gold…we are already hearing cat calls of $1,600 and Gold $2,000. That worries us but at the same time we continue to watch the gold stocks go bananas. Barrick Gold (ABX, $46.07, up $3.38) jumped another 8% yesterday and set a 52-week high in the process.
We spotted the potential breakout in Barrick Gold back in November and for those of you who have yet to see our Members Area; here was the trade on 11/3/09 that returned our subscribers 38% in two days. (Quotes are from that day)
“Barrick Gold (ABX, $38.97, up $2.46)
Buy to OPEN November 40 calls (ABXKH, $1.20, up $0.73)
These calls have been exploding this morning. They OPENED at 40 cents and we started watching them at 60 cents. These calls could make a run to $2.00 and they are moving fast. Do not pay over $1.30-$1.35 for them. This will only be a one or two day trade and the stock appears to be headed to over $40. Its 52-week high is $42.10.” (END)
If you will notice, our trade setup was for a one or two day window and we followed our trading plan to a “T” by closing the call options for $1.65. We should have stayed on the action and maybe we should have rolled some of those profits into the December 45 calls (ABXLI, $2.20, up $1.49) which zoomed 200% yesterday but we didn’t see the continued breakout in the stock.
We still don’t know how high gold goes but one thing is clear, it is on a roll right now.
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