Dow Close to All-Time High

Maintain Upside Bias, but Be Wary of the Downside

By Bryan Bottarelli
Friday, May 05, 2006 10:34 AM EST
Fri, 5 May 2006 15:34:00 GMT

Dear Bottarelli Research Member,

This afternoon, I will be heading out to the Wealth and Trader’s Expo in Atlanta. I frequently attend these trading conferences to catch up on what everyone else is doing — and to see if I can add any profitable trading tricks to my bag. But before I leave, I’d like to give you a quick run-down of our open positions — starting with the remarkable display of upside strength on the Dow.

As I write, the Dow has traded as high as 11,514. That’s a mere 200-points from its all-time record high just above 11,700. To me, I really think there is a sell-off coming — and that’s why I’d like to keep holding our two downside positions: PFCB May 45 Puts (HUO QI) and our BDK May 95 Puts (BDK QS).

Ever since recommending these puts, each stock has slowly ticked higher, but the up-moves were certainly less than impressive. If BDK and PFCB can’t rally in the midst of a market about to break an all-time high, then they’ve bound to experience extreme weakness when the markets eventually turn lower. The higher we move up now, the stronger we’ll eventually fall, so maintain your protective stop losses and hold your BDK and PFCB put positions.

In terms of our three new call positions, you may have noticed that I extended the expiration month — going out until June on ATPG and July on MON and OATS. You also may have noticed that I set a more flexible stop-loss on these plays. Each tactical move was by design.

You see, my goal with these new plays is to extend our holding time so each play isn’t a quick “in and out” situation. Since I feel that all three stocks will gradually move higher, I want to participate in this up-move without worrying about any sudden jumps or dips. Extending the expiration month — and lowering the stop loss — achieves this goal.

So for today, maintain your MON July 85 Calls (MON GQ), your OATS July 17.5 Calls (QOQ GW), and your ATPG June 45 Calls (HKU FI).

We’ll talk again on Monday!

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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