Get Rich Stay Rich April2010


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Get Rich Newsletter published for investors seeking to create monthly income through ETFs, monthly dividends, covered calls, calendar spreads and iron condor.

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Get Rich Stay Rich April2010

  1. 1. April 2010 Edition ©Master Achievement 2010 We want to grow our free subscribers so please recommend this product to your friends. Signup here for free. The Big Picture Our expectation is that the S&P 500 will achieve a low single-digit to low double-digit percentage return, with the first half of the year looking better than the second half of the year in terms of performance. So far so good. The S&P 500 is closing the first quarter on a banner note as faith in economic recovery prospects remains a sustaining factor. Sector leadership has been impressive and is supportive of a pro-growth outlook with the industrials, financial, and consumer discretionary sectors leading the gains. Alternatively, while the large-cap stocks have fared reasonably well, the small-cap and mid-cap stocks have fared even better, which is often the case in a pro-growth trade. Easy earnings comparisons and the Fed's promise that money will remain cheap for an extended period have contributed to a buy-the-dip mentality; however, we suspect complacent trading attitudes are likely to change in the back half of 2010 as the market deals with the impending arrival of higher tax rates, tougher earnings comparisons, and rising interest rates. Trading activity on the U.S. stock exchanges has dropped off noticeably in recent weeks. There was an average of 8.51 bln shares traded daily in February versus an average of 9.11 bln shares in January. For all of 2009, average daily trading volume was 9.77 bln shares. The decline in trading volume is not all that surprising. When a feeling of uncertainty permeates the market, the willingness to commit new capital goes down a notch or two (or three) since volatility typically increases at the same time. What is particularly interesting of late is that volatility has subsided, yet trading volume has continued to be lackluster. This suggests to us that market participants are sensing something big is around the corner. Consequently, they are reluctant to commit capital to the market. To
  2. 2. say something big might be around the corner is to impart a sense that the "something big" is really something bad. That may not necessarily be the case, yet it is easy to think as much given the prominence and the tenor of headlines these days regarding Greece, China, and the hobbled state of the U.S. labor market. Either way, it speaks volumes that the low trading volume shows no one appears to be in a hurry to have a first-mover advantage for either something good or something bad happening. The overriding result has been a trade of indecision where one day's big gainer is the next day's big loser. We do not know if something big will be higher or lower. However, I would be concerned that the market is ready for a pullback. You may want to watch for this and purchase some portfolio protection such as a VIX option since they are cheap at this time. Fund of Funds Portfolio The increase in markets during March has created opportunities to get fully invested in the FOF portfolio (see chart below). You should position your portfolio with 20% in each of the following ETFs: VNQ; PSP; VWO; VB; VTI. All of these ETFs are priced above their 100-day moving average. Small caps continue to outperform large caps through the first 3 months of 2010. The hedge funds are having a better year as the private equity ETF (PSP) is looking good thru March. In fact, PSP is the yearly leader in all FOF asset classes with a return of 8.67% so far. The emerging market ETF (VWO) has moved back into the top five for April investments. Aside from VWO, the majority of ETFs are investments in the U. S. which is a good place to be now as Europe is where the uncertainty is in the credit markets. Covered Call Investments The table below lists the covered calls for May 2010. All of these stocks have met our proprietary covered call selection criteria. This list is heavily concentrated with energy and financial companies. HK, WLT, TCK and VALE are strong energy covered calls that should
  3. 3. hold up as crude oil just broke out above the $82 level. Hartford Financial and MBIA are nice financial picks with this industry looking strong in the markets. As usual, check the option prices as they can change significantly coming off a three-day weekend. Calendar Spreads The calendar spreads this month include ITW and NSC. Both of these stocks are in bullish trends and should remain strong through the decay time. This strategy is to sell a short month call and buy a LEAP call in January 2011. You should sell one call for each LEAP call purchased. Iron Condors This month’s condor is on the SPY ETF for MAY 2010. The SPY is trading at $117.8 as of close on Friday. We want each wing of the condor to be one standard deviation away from the current price. Call wing: sell the May 124 call and buy the May 125 call for a total of ($0.13). Put wing: sell the May 111 put and buy the May 110 put for a total of ($0.11). The total credit is ($0.24) per condor. The margin requirement is $0.76 per condor. This creates a total return of 31.6% at expiration. There is a 14.6% probability of SPY closing above 124 and
  4. 4. a 11.4% probability of SPY closing below 110. You may want to watch as SPY may be ready for a slight pullback to around the 113 mark.