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Dec 18, 2006 - Issue #037

Bulls Rout Bears?

Dow score card for the week ending 12/15/06.

DJ-30: 12445.52 +138.03 +1.12%. In the Real World: 51.78 +0.57 +1.12%.

UP: 23 (+3), Down: 7 (-3).

Trends (weekly): This is the subjective part.

Rising 20 (+7):

+*AIG, +*AXP, C, +*DD, DIS, +*GE, +*HD, HON, HPQ, IBM, JNJ, JPM, KO, MCD, MO, +*MSFT, +*PG, T, VZ, XOM.

Consolidating 7 (-7):


Declining 3 (n/c):


* denotes change of category.

+/- denotes change of direction.

Bulls Rout Bears?

On the surface, an impressive week, no doubt!

Not only did the Dow components in the rising trend category extend their advances, for the most part, but they were joined by seven more of their brethren from the consolidating camp.

C continued to advance, apparently, due to a management shake-up. AXP must be doing a lot of credit card business or whatever, by the rise in their stock. And what's with GE? The CEO says a few words about earnings and the stock goes gang-busters!

Ken Fisher, appearing on CNBC-TV's Kudlow & Company, pushing his latest investing book, The Only 3 Questions That Count, tells us that real estate is not crashing, that we are not carrying enough debt, and that the stock market is undervalued! What if he's right???

The options market volatility index, also known as the fear index is at historically low levels implying smooth sailing ahead. You've been around long enough to know that won't last, right?

So what's the problem? Well, for one thing, many stocks that have risen the most, are seeing their daily price range narrowing as volume increases...a dead give away of plenty of selling into the advance taking place.

As I see it, take advantage of the low option volatility to buy cheap options.

If you're bullish, buy cheap calls. If you're bearish, buy cheap puts. If you think a stock could move either way, buy cheap straddles.

Does it make sense to risk large sums at historically high prices when cheap options are available to control those same positions? Think about it.

Comments? Ideas? Feedback? Let me have it, right between the eyes! I'd love to hear from you. Just reply to this zine and tell me what you think!

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