The “Hillary” Catalyst: Plus A Recession-Resistant Call
Add PPH Puts & MCD Calls
PLAY: Buy the PPH February 50 Puts (PPH NJ) at market, good for the day. Place a protective stop limit at $1.90 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).
PLAY: Buy the MCD June 55 Calls (MCD FK) at market, good for the day. Place a protective stop limit at $2.90 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).
Dear Bottarelli Research Member,
Over the last two weeks, it’s fair to say that we’ve made the most out of the market’s re-test of the October lows.
Just yesterday, for example, we locked in 114% on our Visa January 55 Puts (V MK).On Thursday, we locked in 47% profits on WYNN January 35 Puts (UWY MG). A day earlier, we locked in upwards of 150% profits on AZO January 100 Puts (AZO MT) and another 118% on Zale February 20 Puts (ZLC ND). A week earlier, we locked in 88% profits on half of our TM January 65 Puts (TM MM).Add it up, and that’s total gains of 514% over the last two weeks. Not too shabby!
At the same time, we’re also holding longer-dated calls that are poised for strong recoveries once the market sets a firm bottom. Since many of these call positions have January of 2010 expiration dates (some even longer), we have plenty of time for these positions to recover. And in the process, we’re positioning ourselves to profit off a near-term market fall followed by a longer-term market recovery. In this market environment, there’s really no other way to successfully play it.
Because of this performance, I’d like to continue our strategy of adding near-term puts on the companies that I feel will continue falling, while also adding longer-term calls on strong companies that are due for a recovery in 2009 and into 2010. So on that note, let’s get started!
The first play will be a downside opportunity on shares of Pharmaceutical HOLDRs (PPH – AMEX). The PPH is a basket of Big Pharma companies, including exposure to names like Bristol Meyers Sqibb, Merck, Pfizer, and Schering Plough. In short, the PPH is a non-diversified investment that seeks to emulate the performance in the pharmaceutical industry.
Consistent with our trading thesis from last week (which resulted in a call recommendation on Teva Pharmaceuticals), the Obama-lead Democratic party has pledged to push for cheaper alternatives to branded drugs. As you can imagine, this is bad news for the entire Big Pharma industry. Plus, with renewed talk of Hillary Clinton becoming our new Secretary of State, this move could single-handedly sucker-punch every Big Pharma stock square in the gut. Therefore, it’s easy to conclude that there’s more downside ahead for the entire Big Pharma industry. And today, we’re going to position ourselves to profit off it.
As you can see from the chart, the PPH is noticeably below its 50-day and 200-day moving averages, and it’s also on the verge of setting a new 52-week low below the $50.00 level. Let’s profit off a continued downward push using February puts.
PLAY: Buy the PPH February 50 Puts (PPH NJ) at market, good for the day. Place a protective stop limit at $1.90 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).
Next up, we have an upside call play on one of the few companies that has actually been prospering in this market environment. That company is McDonald’s (MCD – NYSE).
I’m sure that McDonald’s needs no introduction. They operate 31,377 restaurants in 118 countries, and in times of recession, McDonald’s is a stock that actually stands to benefit. You see, discount companies like Wal-Mart, BJ’s Wholesale Club, and McDonald’s are the only three retail companies that have reported strong earnings reports. Every other retail stock that I follow has suffered.
It’s easy to understand why this is happening…
When you study the length and duration of every U.S. recession over the last 60 years, you’ll see that we’ve experienced a total of 10 recessions (not including the current one here in 2007-2008). In terms of length, the shortest recession lasted six months in 1980, while the longest recession spanned three years (starting in 1973 and ending in 1975). And here’s the thing to consider: In between every recession, the U.S. markets have averaged an expansion period lasting just under 5 years.
Keeping these historical recession statistics in mind is important because due to the unprecedented economic events that have crippled our financial system, Americans are fearful that the economic conditions could not only get worse but could also stay depressed for a long time. In my view, our current recession looks like it’ll last well into 2009, putting it at the longer-end of the historical recession timeframe. As a result, we’re now seeing a national push towards thrifty buying patterns that we haven’t seen in decades. And as you can imagine, this national shift towards stretching every dollar is a direct benefit to McDonald’s.
Case in point, retail sales fell 2.8% in October (their fourth straight monthly drop) while the U.S. unemployment rate hit a 14-year high of 6.5%. But at the same time, McDonald’s reported on October 22nd that their profits rose 27% over last year, while their sales grew 6% to $6.27 billion. These numbers topped expectations of analysts polled by Thomson Reuters. That’s why MCD appears to be one of the only “recession resistant” companies that’ll continue to benefit in the weeks and months ahead.
Further supporting this thesis is the MCD stock chart, which is down only -3.3% over the last 52 weeks, severely out-performing the S&P 500 (which as lost -43% over the same time period). With a forward annual dividend yield of 3.5%, MCD looks like one of the only “strong buys” right now, so let’s get positioned to ride any upside momentum using June 55 calls.
PLAY: Buy the MCD June 55 Calls (MCD FK) at market, good for the day. Place a protective stop limit at $2.90 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).
UPDATES
Teva Pharmaceuticals January 2010 45 Calls (WTX AI): These calls have traded as high as 16.90% this week despite a very weak market environment. Not a bad start! Hold.
iShares MSCI Emerging Markets Index March 24 Puts (MBY OX): Our self-proclaimed “Global Armageddon” play has handed us a solid 36.45% return in its first week. Be sure to lock in half of your profits at the 50% level. Sell HALF at 50%.
ADM January 2010 20 Calls (WRA AD): Similar to our TEVA calls, our ADM calls have also handed us strong returns despite a weak market environment. We’ve seen a gain as high as 28%, so continue holding these calls for more upside. Hold.
Casey’s General Store February 30 Puts (CQO NF): The CASY stock chart has now confirmed a double-top formation, which indicates further weakness on the horizon. I continue to feel that the stock should be priced around $13.00 per share. Hold.
Visa January 55 Puts (V MK): We locked in a strong 118% gain this week, which now leaves us holding our remaining contracts for even more upside. As I mentioned previously, the number of credit card “swipes” this holiday season is almost guaranteed to be way down over previous years, and that means severely reduced transaction fees for Visa. Maintain your puts for more upside. Hold.
AKS January 2010 15 Calls (YDF AC), Ultra Financials June 8 Calls (UUF FH), Excel Maritime March 15 Calls (EKN CC), & Tesoro January 2011 5 Calls (ZGC AA): These four positions represent the most severely over-sold sector rebound plays. Steel, oil refiners, dry bulk shippers, and financials have gotten absolutely decimated in this market, but there has to be a bottom somewhere. After all, these four sectors will not go away. Therefore, taking a longer-term approach towards an eventual recovery can handsomely pay off for anyone patient enough to wait it out. Maintain all four recovery positions. Hold.
Wynn Resorts January 35 Puts (UWY MG): We locked in a 47% return this week, and considering the dire status of casino operators, it’s easy to see that we’ll be locking in 100% profits very soon. Hold the second half of your position for more upside. Hold.
Auto Zone January 100 Puts (AZO MT): Shares of AZO hit a new 52-week low at $84.66 this week, but that’s still way above my target price of $60.00 per share. Due to this fall, our puts have registered a very strong 171% gain, but I still feel there’s more to come. Be sure to sell another put at the 200% profit mark. Sell at 200%.
Zale February 20 Puts (ZLC ND): We officially closed off this entire position for a strong 120% return. Congratulations on your gains. This position is now closed.
Toyota Motors January 65 Puts (TM MM): Once again, we sold half of our position as it ticked up to a high of 88% this week. Be sure to sell another put if it hits the 100% level. Sell at 100%.
Apex Silver Mines January 2010 2.5 Calls (YSB AZ), Southern Peru Copper January 2010 25 Calls (YPV AE), & Barrick Gold January 2010 40 Calls (WRX AH): This week, we’ve seen something that I’ve been expecting for weeks — perhaps even months. That is, we’ve seen investment dollars starting to aggressively flow back into precious metals. Gold prices were up HUGE on Friday, and I expect this to extend into all of the precious metals for the remainder of the 2008 trading year. Therefore, I’d like to add to our position in the Barrick Gold January 2010 40 Calls (WRX AH).As you know, we entered these calls on 8/18/2008 for $5.00 and sold half when they reached $9.30, good for a nice 86% gainer. Now they’re back down to $4.90, so let’s re-load our ledger and play another upside move in gold.
PLAY: Buy more Barrick Gold January 2010 40 Calls (WRX AH) at market, good for the week.
America Movil January 2009 70 Calls (AMX AN), Petroleo Brasileiro January 90 Calls (PMJ AR), & Entergy January 140 Calls (ODF AH): Finally, it’s time that we rid our portfolio of these three positions once and for all. As you know, these were plays that we initiated close to the market top, and now that they’ve fallen, there’s no sense in holding them any longer. Chalk them up as a tax loss and close them out now. Sell.
Sincerely,
© 2012 CSR Group, LLC. All rights reserved. Published in USA.
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