June 1, 2009 Weekly Market Strategies
(5/31/2009)

I. Market Laboratory – Weekly Changes

II. ECONOMIC NEWS

First QTR GDP was revised to -5.7%, worse than the -5.5% expected but better than the originally reported forecast of – 6.1%. Upward revisions to private domestic investment, government spending and exports were offsetting positive factors. In addition, the change in private inventories subtracted 2.34 percentage points in real GDP compared with -2.79 in the last report. The weaker dollar, which bolsters U.S. exports, was not accounted for in this report.

The GM bankruptcy and the likelihood that the government will own 70% of GM not only is a big negative for the dollar but for a capitalist economy. The current stockholders will be wiped out replaced as equity holders by Uncle Sam with 70% and the United Auto workers with 17.5%. The Opel brand, GM’s business in Europe, will be sold. Under a new labor agreement with the UAW GM’s hourly domestic workforce which numbered 600,000 at its peak, will drop to 40,000. The ripple effect is yet to be felt with dealers losing franchises and thousands of suppliers doomed. Fears are emerging that “ Government Motors” will have crossed the line having punished bondholders, coddled union workers and creating a taskforce spending over $ 70 billion in overseeing the beleaguered company.

Durable Goods came in at a much better 1.9% ( consensus 0.5% ) but was offset by a downward revision in March to -2.1% from -0.8%. Continuing Claims reached another record high of 6.788 million, which indicates that the pace of hiring is extremely weak.

III. ECONOMIC NUMBERS AND MEDIA DATA

IV. INDEX OPTION RECOMMENDATIONS

Three week’s ago we recommended the purchase of the DOW June 87 put (DAVRI) when the DOW traded below 8,358. We are holding the option at a small loss. Take half profits at DOW 8,100 and the remaining half at 7,900. Place a stop 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. New and/or additional positions should have been bought on the rally into early/mid May or one can wait until the rally into July.

For those who have no put options to protect your portfolio we recommended the following options, especially on any rally: the DOW September 82 puts (davud) or the June 84 puts (davrf) and the QQQQ June 34 puts (qavrh) or September 33 puts (qavug).

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.

V. Stock Option Recommendations

u All options count for 5% each for model portfolio calculations.

u When the option has doubled sell half the position.

u Stop Loss protection is offered with each trade.

u 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.

u The options will be followed until closed out.

Previous Week’s Recommendations:

Note: 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 got stopped out of our QQQRI option position. The QQQQ tested the support at 32.95 last Tuesday morning but held and then rallied.

New Recommendations:

GG- Goldcorp- 39.73- has rallied from 27 to 40 in a month so is over extended and should now pull back. Buy the July 40 Put-GAGSH- 3.10- for a move back to 36 and then possibly lower. Place a stop loss on the option when the stock closes over 43. Take half profits when the stock is at 36.

UNH- United Health Group- 26.60- rallied from 16 to 29 during the past three months. Has consolidated and now looks like it wants to break down. A close below 26 would be very bearish. Buy the July 28 Puts -UNHST- 2.70- for a move back to 24 and then possibly lower. Place a stop loss on the option if the stock closes over 28.50. Take partial (half) profits when the stock is at 24. This is a play on the administrations likely healthcare changes (the government competing with health insurance companies and HMO’s).

VI. Model STOCK PORTFOLIO

§ Each stock is allocated a 5% share of the portfolio (unless otherwise indicated).

§ We recommend a 10% position in ENZ and CAGC.

Note: Previous closed out positions can be found in the March 23, 2009 letter.

New Stock Recommendation

S- Sprint Nextel- 5.15- had a break away gap to the upside a month ago and has consolidated since then. Is a speculative play on new products. Place a stop loss at 4.00. Take half profits when the stock is at 6.00.

Model Portfolio Comments/Changes

VII. We took the remaining half profits on our GG position last Tuesday morning for a nice profit (unfortunately we were a few days to early). We will lower the stop on our BCLE position to 0.03. The stock was under pressure this week but we still like it. Many of our portfolio stocks held up quite well this past week. Sell the remaining CAGC position at the open on Monday. We have a decent profit. We will hold the remaining positions into our expected cycle top in July.

VIII. FUNDAMENTAL NEWS

A surge in yields catapulting their 200 day moving average occurred following a successful 5-yr and 7-yr notes offering. The auction was sold out, but sellers continued to pressure the longer end of the curve. Bonds and the 10-yr benchmark Treasury bore the brunt of the selling some of which was hedging from buyers at the auction. Higher borrowing costs and higher yields undermine a fragile housing recovery.

The average rate for 30-yr fixed-rate mortgages increased to 4.81% for the week ended may 22^nd from 4.69%, with points increasing to 1.16 from 1.01. Mortgage loan application volume fell 14.2% to 786.0 from 915.9 the previous week. The index is still ahead 28.5% when compared with the same time a year ago.

Notwithstanding poor credit markets, led by a much better than expected Consumer Confidence number ( May reading 54.9 vs a consensus of 42.6 ) stock indexes surged ahead in a holiday-shortened week. Transports led with a 6.5% gain, followed by the Russell + 5%, Nasdaq + 4.9%, S&P 500 + 3.6% and the Dow + 2.7%. in relatively light volume.

Stocks continue fulfilling a bearish prophecy to try and reach the 200 day moving average from their low points. The Nasdaq 100 index has catapulted above that bellwether level. Nasdaq itself, the S&P 500, Dow, Russell, DJ Transportation are all lagging behind. Should they get there, selling, or more conservatively, buying PUTS is without a doubt a necessity. Stocks have undoubtedly benefitted from dollar weakness.

The market did very well overcoming Korea and GM, but this week it faces the ever gloomy Employment Report.

IX. Technical Information

The sell off last Tuesday morning May 26 held just above the intraday lows made Thursday May 21 and Friday May 15 at DOW: 8,221, S&P 500: 879 and QQQQ: 32.95 and then rallied sharply. We have been looking for a high in our cycle time frame due in late April/early May (plus or minus a week) and the highs came in on Friday May 8 at DOW: 8,587 and at S&P 500: 930 and on May 6 at QQQQ: 35.34. We had a short term cycle due mid-late May and it looks like a triple bottom low came in between May 15 and May 26. Our next short term cycle is due mid-June and it could be either a low or high, depending on how the current month long rectangular trading range resolves itself. Closes below the May 15/21/26 lows at DOW: 8,221, S&P 500: 879 and QQQQ: 32.95 would confirm that a steeper sell off was in progress giving a DOW chart count around 7,800, possibly bottoming mid-June. If the triple bottom holds then the market will indicate strength and can then rally into our next intermediate cycle in July (with a possible low in mid-June). Closes above the resistance at the top of the range at DOW: 8,592, S&P 500: 930 and QQQQ: 35.34 (the May 6/8 highs) give a DOW chart count around 9,000 and a S&P 500 count around 980. The QQQQ got above the May 6 high of 35.35 this past Friday (getting up to 35.50 intraday). However, the rally this past Friday (mainly the last ten minutes) was the usual last day of the month rally when institutions window dress their portfolios. We thus have a potential bearish divergence between the QQQQ and the DOW and S&P 500, which are both still below their May 20 and May 6/8 highs. The action early this week will tell us if Friday’s late rally was the real thing or was just due to the end of the month institutional window dressing. During this past week there was considerably more call option buying than put option buying indicating too much complacency and bullishness (making a big rally unlikely at the moment). However, this week is the first week of the month which usually has a bullish bias because 401k, pension, etc. money comes into the market. So it will be interesting to see which way the market goes this week. Below the May 15/21/26 lows there is support at the April 28 lows at DOW: 7,939, S&P 500: 847 and if these levels are broken then there is support at the April 21 lows at DOW: 7,791, S&P 500: 826 and QQQQ: 32.08 and then at the April 7 lows at 7,750, S&P 500: 814 and QQQQ: 31.21. If those lows are broken then there is support at the March 30 lows at DOW: 7,437, S&P 500: 779 and QQQQ: 29.65. We still expect higher prices into our intermediate cycle in July, whether we get a pull back first or not. A pullback that breaks the support at DOW: 7,750 S&P 500: 814 and QQQQ: 31.21 would show market weakness much greater than we expect at this time. 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 secular 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.

The support and resistance levels to watch now are: S&P 500: support is at 879, then 866, then 847, then 826, then 814 then 766 while resistance is at 930, then 944 and then 1008 for the QQQQ: support is at 32.95, then 32.08, then 31.21, then 29.65, then 28.98 and then 27.7 while there is resistance at 35.50 and then 36.15 and for the DOW: support is at 8,220, then 8,099, then 7,939, then 7,791, then 7,759 and then 7,437 while there is resistance at 8,587-92 and then 9,026-9,088.

X. 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 was due in late April/early May (plus or minus a week) and it came in on May 6/8. The cycle following that one was a short term cycle in mid/late May and a triple bottom low came in between May 15 and 26. The next short term cycle is in mid-June and it can be either a low or high (our feeling is that it will be a low). An intermediate cycle is due in early/mid July (expected to be a high).

XI. Legal DISCLOSURE

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.

Princeton Research has received 550,000 restricted shares from BCLE in exchange for investor relations services.

XII. CONTACT

Please Direct all Inquires:

ATTN: Mike King

Princeton Research

3887 Pacific Street

Las Vegas, Nevada 89121

Phone: (702) 650-3000

Fax: (702) 697-8944

mike@princetonresearch.com

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