Weekly Market Success Strategies

Contributing Research Staff: Dr Jan Vandersande, Mike King

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COVERING:
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Morning Comments – April 27, 2009
Market Laboratory --- Weekly Changes
Dow 8,079.29 -55.04 -0.68% Gold 913.60 +46.20 +5.3% VIX 36.82 +2.88 +8.5% CRB Inflation Index 222.86 -2.99 --1.3% AAII Confidence Index Nasdaq S&P 500 1,694.29 866.23 +21.22 -3.37 +1.27% -0.39% Silver Crude 1292.0 51.55 +113.0 +1.22 +9.6% +2.4% Put/Call Ratios Put/CallRatios OEX CBOE Equity 81/100’s 70/100’s -24/100’s +13/100’s Barron’s Confidence S&P100 Index 402.46 55.3% -3.87 +1.0% -0.95% Bullish 31.8% -12.3% Bearish 38.6% +2.7% Transportation 3,137.76 +42.89 +1.39% Heating Oil 138.58 -5.67 -4.0% Bonds 124-07 -1-04 (3.88% +0.08%) 5 Yr Note 117-09 -055 (1.93%+0.04%) Neutral 29.6% 49.6% Russell 2000 478.74 -0.63 -0.13% Unleaded Gas 1.4475 -.0452 -3.0% 10 Yr Note 121-175 -235 (2.99% +0.04%) Dollar 84.77 -1.21 -1.4% Nasdaq 100 1373.28 +19.36 +1.43% Natural Gas 3.297 -.432 -11.6% Copper 205.05 -14.35 -6.5%

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Fundamental News

The DJ Transportation Index ( + 1.39% for the week) led all indexes followed by Nasdaq ( + 1.27% ) which has now forged ahead 7.44% on the year. ( see above chart ) The Dow, S&P 500 and Russell were all a tad lower. Stocks seemed to gain confidence and volume rose following a government release on some details of banks’ stress tests. More details are expected to be released May 4th. The Fed said the top 19 banks would have to hold “substantial” more capital to avoid a more severe recession. However, preliminary results of the Fed’s first stress test showed that most banks have capital levels well in excess of amounts necessary. There were no details if any banks failed the test. Nasdaq rose for a seventh consecutive week, while the streaks for the Dow and S&P 500 were stopped at six. Ford ( F: $ 5.24 ) surprised posting a loss of $ 1.4 billion losing $ 0.75/share, beating expectations by 48 cents. Ford shares rose 11% to $ 5.24, its best level since September, despite burning through $ 3.7 bil cash, far less than the $ 7.2 bil in the 4th Qtr. Earnings were posted for 13 Dow components. 10 were on the upside and 3 worse. For the week, 143 S&P 500 companies posted results. 80 companies reported better-than-expected earnings, while 40 were worse. Some of the more notable companies that beat expectations were Apple, Amazon, Amer Express, AT&T, Bank of America, Caterpillar, DuPont, eBay, Ford, McDonalds and Microsoft, while misses included Amgen, Boeing, Capital One, 3M, Merck and Morgan Stanley.

Economic news
New Home inventories fell 5.2%, the biggest drop in 23 months to a 7-yr low as builders slashed inventories. Sales slipped 0.6% in March to an annualized rate of 356,000 units, but Feb’s gains + 8.2% had been revised sharply higher. Notably, the median sales price increased 4.2% from February to $ 175,200, 12.4% below year ago levels. Though the housing market has benefitted from low interest rates and affordability, rising unemployment, steep levels of inventory and tighter credit conditions continue to act as a notable drag. Durable Goods orders fell less than expected, the headline number off 0.8% in March vs an estimate of -1.5%, which was interpreted as good news although revisions from February were marked down from an originally reported increase of 3.4% to 2.1%. Shipments were down 1.7% following the 0.8% decline in February, which will be a negative for QTR 1 GDP. There was continued weakness in business investment evidenced by a 1.7% drop in the shipment of non-defense capital goods, excluding aircraft. The news may have been received positively, but further analysis shows that it remains negative for the economy.

Economic Numbers and Media Data
Monday: Another big week again for earnings reports: Corning, Qualcom,Verizon, Whirlpool; Noted bear Roubini and professor Andrew Lo headline the CFA Institute’s annual conference 1000 hrs Consumer Confidence for April ( 29 vs 26 ) Case Shiller Feb Home Price index ( -18.8% vs -18.97% ) 0830 hrs GDP-Advance Qtr1 ( -5.1% vs -6.3% ); Implicit Price Deflator ( 1.7% vs 0.5%) 0900 hrs Treasury makes quarterly Refunding Announcement

Tuesday: Wednesday:

Thursday:

10:30 hrs:Crude Inventories 4/24 ( N/A vs +3857K ) 14:15 hrs Fed Rate decision 0830 hrs., Initial Unemployment Claims for week 4/25 ( N/A vs 640K ) 0830 hrs Personal Income ( -0.2% vs -0.2% last month ) Personal Spending -0.1% vs 0.2%; Employment Cost Index ( + 0.5% vs +0.5% ); Chicago PMI 34.0 vs 31.4: 09:55hrs Michigan Sentiment Revised ( 61.5 vs 61.9 ) 1000 hrs Mar Factory Orders ( -0.7% vs 1.8% ) Apr. ISM Index ( 38.0 vs 36.3 ) 1400 hrs April Auto and Truck Sales ( 3.3M autos and 3.8M trucks )

Friday:

Index Option Recommendations (count for 5% in our model portfolio)
Last week we recommended buying the DOW May 84 Put (DAVQF) at the open last Monday. Unfortunately the market opened sharply lower last Monday so we did not get a good price. We are currently holding it at a small loss. Place a stop loss at half the cost of the option. For investors it has continually been recommended that some puts are held to protect one’s portfolio (portfolio insurance) against sharp market sell-offs. Buy new and/or additional positions on the expected rally into late April/early May. For those who have no put options to protect your portfolio we recommended the following options, especially on any rally: the DOW June 82 puts (davrd) or the June 80 puts (dijrb) and the QQQQ June 34 puts (qavrh) or 33 puts (qavrg). For those of you who do not buy puts to protect your portfolio, there is an ETF that is the inverse of the DOW. The symbol is DOG and goes up when the DOW goes down and down when the DOW goes up.

Stock Option Recommendations
All options count for 5% each for model portfolio calculations. When the option has doubled sell half the position. Stop Loss protection is offered with each trade. The cost of the option is the asking price (or the price between the bid and ask, whichever is more realistic) at the close the previous Friday or at the open on Monday. The options will be followed until closed out.

Previous week’s recommendations Option
DAVQF GGEE QQQQI STPQZ SZSER TGTQH QCYEC QAVPF TGTPG

COST
5.20 3.00 2.60 2.00 2.52 2.40 2.45 2.13 2.19

Date

Sold

Date

Profit/(Loss)

4/20/09 4/17/09 4/20/09 4/17/09 4/10/09 4/10/09 4/3/09 4.90 (half ) 3/30/09 0.50 stopped out 3/27/09 1.15 stopped out

4/3/09 4/9/09 4/2/09

( 77% ) (47% )

BNQDZ QAVPE XOKDC CHLDI QGJDV QCBDA NDQDU FPADF DIJDL FJJDW TBTDT QBYDZ XOKDW GLDOV ENZDZ DIJCS TGTOF BHPCH

2.30 1.90 4.40 2.50 2.10 0.90 0.70 6.35 4.80 2.95 4.35 0.70 4.35 5.50 1.95 5.05 2.40 4.70

3/20/09 3/20/09 3/13/09 3/13/09 3/13/09 3/6/09 3/6/09 3/6/09 3/9/09 2/27/09 2/27/09 2/27/09 2/27/09 2/20/09 2/20/09 2/23/09 2/13/09 2/13/09

2.30 1.50 stopped out 7.50 (half) 7.00 ( half 3.10 3.40 3.00 (half) 4.00 (half) 1.85 (half) 9.00 (half) 10.35 ( half) 9.40 (half) 10.85 (half ) 4.80 (half) 5.10 (half) 0.80 stopped out 0.50 stopped out 2.60 stopped out 8.30 (half) 6.50 (half ) 1.95 2.90 stopped out 4.05 (half) 4.80 (half) 1.00 stopped out

4/17/09 3/23 3/19/09 3/30/09 4/17/09 4/17/09 3/13/09 3/30/09 3/16/09 4/17/09 3/13/09 3/30/09 3/16/09 3/23/09

0% ( 21% ) 65% 24% 62% 289% 204% 52% 111% 68%

3/30/09 3/5/09 3/2/09 2/26/09 3/20/09 4/17/09 2/27/09 3/9/09 3/2/09 3/2/09

( 84% ) (29%) (40%) 35% 0% (43%) 84% (79%)

(Previous closed out option positions can be found in the February 23, 2009, January 19 2009, September 15, 2008 and November 24, 2008 newsletters)

Option Comments
We bought the QQQQI and DAVQF put options at the open last Monday. We still expect a pullback so we will hold the options.

New Recommendations
NTES- Netease.com- 30.91- has rallied from 18 to 31 in two months so is overbought and should pullback. Puts are thus timely. Buy the May 33 Put -NGHQC- 2.65- for a move back to 28 and then possibly lower. Place a stop loss on the option if the stock closes over 34. Take partial (half) profits when the stock is at 28. ENZ- Enzo Biochem- 4.08- we have played this one before with mixed results but we will try again. Has been trading in the 4-4.50 range for a month now and is currently at good support so calls are timely. Buy the June 2 1/2 Call -ENZFZ- 1.70- for a move back to 5 and then higher. Place a stop loss on the option if the stock closes below 3.50. Take partial (half) profits when the stock is at 5.

MODEL PORTFOLIO
Each stock is allocated a 5% share of the portfolio (unless otherwise indicated). We recommend a 10% position in ENZ and CAGC. Stock GG FXI AMED DUG BOOM NGLS (10%) ENZ (10%) CAGC (5%) CAGC (5%) MTBR Purchase Price 27.01 31.85 29.97 22.46 5.23 8.67 4.29 1.35 0.75 0.09 Purchase Date 4/17/09 4/10/09 4/3/09 4/3/09 3/6/09 11/28/08 11/21/08 9/19/08 11/17/08 6/29/08 Stop loss 25 28 26 20 4.00 Price/Date Sold Profit/(Loss)

14.18 half (4/20/09 6.00 .9.70 (4/20/09) 2.50 0.40 0.40 0.02

18%

( Previous closed out positions can be found in the March 23 letter )

New Stock Recommendation
No recommendations this week. We will wait a pullback before adding to our positions.

Model Portfolio Comments/Changes
We took our profit on our NGLS position last Monday morning. The stock paid one dividend of $0.52 while we held it increasing our profit somewhat. We took half profits of our BOOM position last Monday morning for a really nice profit (nearly 200%). It is still recommended to sell the CAGC position we bought at 0.75, at 1.50 for a double, when it hits that price.

Technical
In the past two weeks we have been writing that the lows made on Tuesday April 7 were the key to the near term bullish case. These lows are at DOW: 7,750, S&P 500: 814 and QQQQ: 31.21. The pullback last week Tuesday April 21 held above those lows while getting down to intraday lows at DOW: 7,791, S&P 500: 826 and QQQQ: 32.08. The market held above those levels and rallied for the rest of last week. We are now entering our cycle high time frame of late April/early May so we must be on the watch for a top. It is possible that the highs on April 17 at DOW: 8,191, S&P 500: 876 and QQQQ: 33.93 (made on April 24) were the cycle highs. We wrote last week that the S&P 500 (and other indices as well) had formed a very well defined rising wedge formation (which is a bearish formation). On Monday the S&P 500 broke down out of this rising wedge formation, a very bearish breakdown. When such a breakdown occurs the market either accelerates to the down side for a few days or rallies back to the underside of the rising wedge formation. The latter occurred last

Wednesday and again on Friday and the rally got exactly up to the broken trend line. The market should now move to the down side if it is going to confirm the breakdown. On Friday the QQQQ made a new recovery high while the DOW and S&P 500 were still below the April 17 highs setting up a negative (bearish) inter market divergence. This divergence can be negated if the DOW and S&P 500 close above those April 17 highs. Any close over those April 17/24 highs would indicate that the rally has further to go. There has still been a lot of call option buying showing too much optimism (low put/call ratio) confirming the likelihood of a down move soon. If the April 7 lows are broken then there is support at the March 30 lows at DOW: 7,437, S&P 500: 779 and QQQQ: 29.65 and then at the March 20 lows at DOW: 7,257, S&P 500: 766 and QQQQ: 28.98. As long as the April 7 lows hold the rally could continue this week. If there are closes over the April 17/24 highs then the upside targets are DOW: 8,400, S&P 500: 900 and QQQQ: 36.00. Once the pullback is over, whether it is sharp or shallow, we expect higher prices into an intermediate cycle in July. A pullback that breaks the support at DOW: 7,437 S&P 500: 779 and QQQQ: 29.65 would show market weakness much greater than we expect at this time and the lows at DOW: 6,979, S&P 500: 724 and QQQQ: 27.71 could then be tested. The parameters to watch are thus very clear and let the support and resistance levels govern your trading and your stops. We are in a bear market that appears to be far from over and we expect lower prices later this year. However, every bear market has several good rallies that can last from a few weeks to a few months and are definitely worth playing. We are in one of those rallies now. This is no doubt that we are in a severe recession which could get worse and last longer than expected. The prestigious Economic Cycle Research Institute has stated that the economy is in a severe recession and no end is yet in sight, even though the downside momentum has slowed. In 1930 and 2001 the Fed kept on cutting rates but could not prevent a recession/depression. The Fed might again be pushing on a string. So this is a time to be very cautious. Keep tight stops on long positions. The support and resistance levels to watch now are: S&P 500: support is at 826, then 814, then 779, then 766 and then 724 while resistance is at 876-878 and then 944 for the QQQQ: support is at 31.85, then 31.21, then 29.65, then 28.98 and then 27.71while there is resistance at 33.93-34.00 and then 36.15 and for the DOW: support is at 7,791, then 7,759, then 7,437, then 7,257, then 6,979 and then 6,450 while there is resistance at 8,191, then 8,315 and then 8,406.

Cycles
We had an intermediate-term cycle due in late February/early March (plus or minus a week) and the low came in on March 6/9. The next important cycle is due now in late April/early May (plus or minus a week) and it will be a high. The cycle following that one is a short term cycle in mid/late May (expected to be a low) and then an intermediate cycle due in early July (expected to be a high).

Rule 17B requires disclosure of payment for investor relations
Princeton Research has received about $ 2,500 per month from MTBR with asterisk. MTBR is reviewing a contract which would pay $ 2,500 per month plus some restricted shares. The main principal of Princeton Research has obtained his own shares amounting to 2,500,000 shares.

Mike King Princeton Research e-mail: mike@princetonresearch.com Phone: (702) 650-3000

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