Action Alert: Lock in Remaining Profits on CRM

Plus: JOYG Stopped

By Bryan Bottarelli
Thursday, September 04, 2008 12:00 PM EDT
Thu, 4 Sep 2008 16:00:00 GMT

PLAY: Sell the second half of your CRM November 55 Puts (CRM WK) at market, good for the day.

Dear Bottarelli Research Member,

As I write, the major market averages are in free-fall. As you can see below, the Dow has now penetrated a critical support level at the 50-day moving average, which indicates that we could re-test the lows below 11,000 in short order.

INDU

As a result, be sure that you maintain your positions that’ll profit off this selling pressure, which include our Wells Fargo January 2009 30 Puts (WFC MF), UltraShort Dow30 ProShares October 65 Calls (DXD JM), and CBOE Volatility Index October 25 Calls (VIX JE).

DXD

At the same time, I’d like to lock in gains on another one of our downside put positions, the Salesforce.com November 55 Puts (CRM WK). As you know, we entered these puts on 7/14/2008 for $5.10, and after a crushing loss in shares of CRM, we locked in gains on half of our position at the $6.50 level. As I write, CRM is one again approaching this low, so I’d like to take profits on the second half of our position now.

CRM

PLAY: Sell the second half of your CRM November 55 Puts (CRM WK) at market, good for the day.

In other news, we’re experiencing an absolutely crushing downside move in anything oil and commodity-related. Sectors like oil, metals, energy, coal, machinery, and even engineering have gotten absolutely crushed over the last week — which has exposed this entire group of stocks to “headline risk.” You see, news of hurricane Gustav’s lack of damage sent oil pricing aggressively lower, and this sparked a week-long sell-off across the entire sector. Predicting this reaction last week would have been nothing more than pure luck. And in many respects, his 50/50 coin-flip scenario is why the entire sector is so volatile right now. Who knows which direction tomorrow’s headline will send prices?

This very situation effected the movements out our latest pick, the JOYG April 80 Calls (JQY DP).Yesterday, JOYG reported that Q3 net income increased 55.1% to $113.1 million ($1.03 per share) versus net income of $72.9 million ($0.66 cents per share) one year ago. Sales also climbed 45.4% to $903.8 million, up from $621.8 million a year ago. This beat the analyst estimates of $884.0 million. But despite these numbers, the brutal commodity sell-off crushed shares of JOYG, effectively stopping us out of the position completely. When I initiated this play last week, my thesis was that strong numbers (like these) would spark a breakout rally in shares of JOYG. But as it turned out, strong numbers (combined with tremendous selling pressure in the coal sector) induced a “sell on news” situation that dropped shares precipitously. As a result, this play is now closed.

Going forward, we’ll avoid exposure to this volatile sector — at least until prices stabilize. While I feel that we’re receiving tremendous buying opportunities in many companies poised to achieve exceptional profits going forward, now is not the time to isolate a bottom. Rather, we’ll transition over into safer plays that do not carry any of the “headline risk” that is now negatively affecting the oil, energy, and commodity sector. I’m follow up on this point in Saturday’s alert.

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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