PLAY: Buy the ABT June 45 Calls (ABT FI) at or under $1.80, good for the day. Place a protective stop limit at $0.55 and a pre-determined sniper sell at $3.50.
PLAY: Buy the QID June 35 Puts (QOI RI) at or under $2.35, good for the day. Place a protective stop limit at $1.55 and a pre-determined sniper sell at $4.50.
PLAY: Buy the GMCR June 90 Calls (QGM FR) at or under $5.00, good for the day. Place a protective stop limit at $2.15 and a pre-determined sniper sell at $8.50.
Dear Bottarelli Research Member,
Since our alert this morning, we haven’t seen too much directional movement. The major market averages all dipped lower at the open, and remained locked in at these levels throughout the day.
This comes at a time when the White House increased its forecast for the U.S. budget deficit for this year by $89 billion — now bringing it up to a staggering $1.84 trillion. That’s 12.9% of our entire gross domestic product. To put this in perspective, that’s 4x the record deficit of 2008. Our government now borrows $0.50 for every $1.00 that it spends. I hate to say it, but taxes are going up folks. Way up. There is simply no other way to pay off this debt. But like I said this morning, I’m going to refrain from focusing on such negative news. In that spirit, I’ve uncovered three strong upside play candidates that I’d like to bring to your attention.
First and foremost, the biotech sector has been noticeably strong today. After studying the charts of companies like CELG, AMGN, GENZ, and GILD, I noticed that we now have a really powerful upside opportunity in Abbott Laboratories (ABT – NYSE).
Despite the strong market rally, shares of ABT are actually down -16% here in 2009, which I feel is a result of investors moving out of “stable” plays like ABT and into more potentially explosive plays (like the financials). This presents us with a nice opportunity today. You see, the pharmaceutical and health care product maker is on pace to have double-digit profit growth in 2009, which isn’t the case for many companies. With a diversified product line (that includes nutritional products like infant formula) and a forward annual dividend yield of 3.6%, ABT looks like a great bargain at these levels. Plus, if you look at the chart below, you’ll notice that the stock has just now poked above the 50-day moving average. If this level acts as support, ABT could form a very nice base for continued upside. Therefore, let’s add ABT June calls to our ledger now. Here’s the play…
PLAY: Buy the ABT June 45 Calls (ABT FI) at or under $1.80, good for the day. Place a protective stop limit at $0.55 and a pre-determined sniper sell at $3.50.
At the same time, I’d like to get positioned to ride continued upside movement in the technology sector by adding put options on the UltraShort QQQ ProShares (QID – NYSE).As a quick refresher, the QID moves at a rate of twice the inverse of the NASDAQ 100. Therefore, if tech stocks like AAPL, GOOG, RIMM, and AMZN move higher, the QID will move lower. Adding QID puts will position us to profit off this situation. Since we’re already positioned for weakness in the housing and financial sectors, this play acts as a nice hedge. So, as a way to buy into today’s market dip, let’s add QID puts as well.
PLAY: Buy the QID June 35 Puts (QOI RI) at or under $2.35, good for the day. Place a protective stop limit at $1.55 and a pre-determined sniper sell at $4.50.
In terms of a more speculative play, I’d like to bring to your attention the remarkable trading pattern of Green Mountain Coffee Roasters (GMCR – NASDAQ). As a company description, GMCR isn’t too sexy. They sell whole bean and ground coffee selections in K-Cup portion packs, which are then brewed by their own proprietary Keurig single-cup brewers. From a technical standpoint, the stock is one of the most overvalued companies on Wall Street. For example, they currently have a forward P/E multiple of 39.48. But get this: As I write, 44.40% of GMCR shares are sold short. This tells me that GMCR is moving up solely due to a “short-squeeze,” which is a situation where a lack of supply and an excess demand forces prices dramatically upward.
In other words, if GMCR moves lower, someone who is short will want to cover his/her position by buying back the stock. The trouble is, when there are not too many shares available to buy back, this short-covering actually pushes the stock higher. Therefore, in situations like this, GMCR could soon find itself trading for over $100.00 per share — even though it has absolutely no fundamental reason to be at such lofty values. So, as a speculative play, let’s ride this short-squeeze situation for more upside. Here’s the play…
PLAY: Buy the GMCR June 90 Calls (QGM FR) at or under $5.00, good for the day. Place a protective stop limit at $2.15 and a pre-determined sniper sell at $8.50.
In terms of a “head’s up,” take a quick look at the current chart of DryShips (DRYS – NASDAQ). As you’ll see, the dry bulk shipper has put in three aggressive red candlestick formations, which is bringing the stock right down to 50-day moving average support at the $6.00 level. If DRYS tests this level and holds, we could have a strong opportunity to play upside calls. For now, let’s wait.
As always, I’ll keep you fully informed on all trading plays. But until then…
Lock and load!
Sincerely,
