No “Safe Havens”

Add LVS Puts

PLAY: Buy the LVS December 40 Puts (LVS XH) at market, good for the day. Place a protective stop limit at $3.20 and implement our scaled-selling technique to lock in portions of your profits as these calls achieve 50% returns (and greater).

Dear Bottarelli Research Member,

As I mentioned on your “Action Alert” on Thursday, the major market averages were engaged in a complete free-fall. And the scary thing about Thursday’s selling pressure was the fact that there are absolutely no safe-havens.

For example, oil was down. Gold was down. Transports were down. Utilities were down. Chips were down. Materials were down. Retail was down. Tech was down. Even the international markets were lower across the board. So in a way, you can argue that there are no “safe-havens” anywhere in the global financial marketplace right now.

The primary reason we’re experiencing such a crushing downside move is entirely oil and commodity related. You see, the entire commodity sector (which now includes sectors like oil, metals, energy, coal, machinery, fertilizer, engineering, and solar) are tremendously exposed to “headline risk.” This is a very tricky situation, simply because it’s impossible to predict which way the headlines will sway prices. It all started on Tuesday, when news of hurricane Gustav’s lack of damage sent oil pricing tumbling aggressively lower. This selling pressure extended all week long, culminating with Thursday’s crushing 330-point fall. In fact, the intense downside move on Thursday pushed the Dow underneath its critical support level at the 50-day moving average. And as much as I hate to say it, this technical pattern points to further weakness ahead. Therefore, the one and only way to achieve any profits right now is to be a holder of put options, ultra-short calls, or volatility calls.

In terms of our current LEAPS ledger, we were able to use this selling pressure to lock in the remainder of our profits on the Salesforce.com November 55 Puts (CRM WK). We’re also positioned to achieve profits off more downside selling pressure using our Wells Fargo January 2009 30 Puts (WFC MF), Ultra Short Dow 30 ProShares October 65 Calls (DXD JM), and CBOE Volatility Index October 25 Calls (VIX JE).I’ll address all of our positions updates below. But in terms of today’s new play, it goes without saying that we’ll be adding a downside put position. And today’s put candidate comes in the form of Las Vegas Sands (LVS – NYSE).

We have a handful of bearish triggers currently affecting shares of LVS.

First, the Beijing Olympics are officially over, which means that the hoards of travelers who made a stop off in Macau for some gambling have now gone home. This leads me to believe that Macau has now experienced their best months of the year, which will lead to reduced gambling profits in Q4 2008.

Second, the summer traveling season is over as well. June, July, and August are typically the peak travel seasons, and now that school has started, the up-tick in Macau vacationers is in the rearview mirror. This further supports reduced gambling profits.

Third, a global recession has lowered the profit outlook for casino operators across the world. It was once thought that casino operators like MGM Mirage (MGM – NYSE), Wynn Resorts (WYNN – NASDAQ), and Las Vegas Sands (LVS – NYSE) were recession-proof.But now that gambling revenues have been steadily falling, it’s easy to see that this recession-proof thesis is completely not true. Therefore, we could see further weakness going into Q4 2008.

Forth (and most importantly), a recent news report from Macao Daily said that the Chinese government is determined to control the growth of Macau’s gambling industry. As a result, they could begin placing new restrictions on visits to Macau.

Starting as early as this October, the Chinese government could begin limiting the number of Macau visits from the mainland. As is stands today, visitors are permitted to go to Macau once every two months, but some Chinese residents have been using visas approved several months earlier to visit Macau. Any new visa restrictions will severely stunt Macau’s growth, and this will serve as a crushing blow to casino operators like LVS. As a result, the remainder of the 2008 year looks to be well below expectations.

In July, for example, Macau enjoyed a 42% year-over-year growth from casino operations. In August, this number came in at 44% year-over-year growth. But looking ahead to September, October, November, and December, I think that the revenue growth won’t even come close to these numbers. It goes without saying that the fear of governmental restriction is terrible news for Macau-based casino operators. In fact, if you look at the LVS chart, you can see this negativity coming into play already.

As you can see, a bounce off the $30.00 level in mid-July sparked a mid-term rally up to $60.00 in mid-August. But now that governmental restrictions could begin in October, this rally has begun to unwind — and this could take shares back down to the previous low at $30.00.

Furthermore, a clear “Head and Shoulders” pattern has now formed (with two shoulders at the $50.00 level and a head at $60.00), which is confirmation that the stock is headed back down to $30.00. Therefore, let’s get positioned to profit off this fall using December 40 Puts.

PLAY: Buy the LVS December 40 Puts (LVS XH) at market, good for the day. Place a protective stop limit at $3.20 and implement our scaled-selling technique to lock in portions of your profits as these calls achieve 50% returns (and greater).

TACTICAL NOTE: As I mentioned in Thursday’s “Action Alert,” we’re receiving tremendous buying opportunities in many companies poised to achieve exceptional profits going forward. But due to dangerous market conditions, now is not the time to isolate a bottom. So going forward, the plan is to avoid exposure to the volatile oil and commodity sector — at least until prices stabilize. In the meantime, 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. One such play comes in the form of generic-drug maker Teva Pharmaceuticals (TEVA – NASDAQ), which has withstood the market selling pressure and actually rallied in the month of August.

Another safe play could be longer-dated calls on the Pharmaceutical HOLDRs (PPH – AMEX).This collection of healthcare companies offers you exposure to Abbott Labs, Eli Lilly, Johnson & Johnson, Merck, Zimmer Holdings, Schering Plough, Pfizer, Merck, and Wyeth. A recent dip underneath the 50-day moving average could serve as a nice entry point. More on each of these potential upside plays will come in a forthcoming LEAPS alert.

On the downside, we have a potential play in Sears Holdings (SHLD – NASDAQ). As you can see, the depressed retailer is currently failing right at its 200-day moving average, and this could spark a move back down to $70.00. Stay tuned for this potential put play as well.

In the meantime, here are your weekly position updates…

UPDATES

Wells Fargo January 2009 30 Puts (WFC MF): Our tactic of “shorting any financial rally” has pulled this position back to break-even this week, and I anticipate further weakness in the months ahead. Hold.

Southern Peru Copper January 2010 25 Calls (YPV AE), Barrick Gold January 2010 40 Calls (WRX AH), United States Natural Gas Fund January 40 Calls (UNG AN), & JA Solar Holdings January 15 Calls (QJP AC): The “headline risk” that I noted above took a bite out of these four positions this week, but I rate them all as screaming buys at current levels. Metals plays like ABX and PCU, solar plays like JASO, and natural gas plays like UNG will not continue selling off so aggressively forever. And when the bottom is established, I want to be sure we’re positioned to profit off the strong (and inevitable) rebound. Looking specifically at UNG, we might be getting close to the time to add to our position. This could end up being one of the most explosive winners we have in all of 2008, so I want to stick with it. If the time comes to add to the position, I’ll let you know. Until then, Hold.

UltraShort Dow30 ProShares October 65 Calls (DXD JM) & CBOE Volatility Index October 25 Calls (VIX JE): Thursday’s 330-point loss on the Dow clearly illustrates why we have these two protective positions. With the major market averages breaking below their critical 50-day moving averages, we could see further downside in the weeks that follow. If we do, both positions will hand you a strong return. And like Thursday, it can happen very quickly. Hold.

Valero Energy January 35 Calls (VLO AG): With oil prices getting hit hard, refiners like VLO will soon be the prime beneficiaries. In fact, I think that companies like VLO and TSO will soon get recognized as the very best way to play further oil price declines. Therefore, maintain your VLO calls to particulate in this upside. Hold.

Overseas Shipholding Group January 95 Calls (OSG AS), America Movil January 2009 70 Calls (AMX AN), Petroleo Brasileiro January 90 Calls (PMJ AR), & Entergy January 140 Calls (ODF AH): These four positions experienced sizable drops as the commodity market continue to aggressively sell off. Luckily, we still have five months to witness a recovery. With our positions trading at nominal value, the advice remains to utilize our extended expiration times and hold. Hold.

Sincerely,