Quick End of Day Play

Plus, Some New Observations

Dear Bottarelli Research Member,

To be perfectly honest, there isn’t much happening in the markets today. The big question circulating the trading desks is whether or not the major market averages are due for a sell-off after mounting an impressive upside rally so far this week. In my opinion, the answer is “no.”

Not many people have noticed this, but the S&P 100 (OEX) registered a new 52-week high yesterday at 609.07. This is a bullish sign, especially here in the short term. While the months of August and September have historically been weak months for equities, we just bucked that trend and witnessed a strong August. And so far in September, the same bullish pattern is holding, which leads me to believe that we’ll register more new highs on the major market indices. Only after hitting those highs is when we may witness subsequent downside pressure.

Case in point, take today’s market action. If the bulls were truly exhausted, we would be seeing a much more powerful downside day. But as it stands, the Dow has traded as low as 30 points and as high as 7 points, so no directional bias has been established. As a result of this indecision, I must side with the near-term trend — which is to the upside.

So while we have a brief moment, I’d like to highlight some possible trades that have caught my eye — as a way to give you an advanced look at potential plays that could evolve into recommendations in the near future.

First off we have Arch Coal (ACI – NYSE), the coal operator in the eastern and western United States. Coal companies are getting battered across the board, and ACI is now putting in a bearish candlestick formation that could lead to even more weakness in the near-term. Check out the chart:

In fact, the more I look at ACI, the less I want to wait. Let’s go ahead and get positioned for a quick-hit winner here at the close of trading.

PLAY: Buy the ACI October 27.5 Puts (ACI VT) at or under $2.10, good for the day. Current bid/ask spread is $1.90 to $2.00. Place a protective stop loss at $1.30.

Also catching my eye is the quiet upside moves in both Oracle (ORCL – NASDAQ) and Cisco Systems (CSCO – NASDAQ). Left for dead for the last three years (at least), ORCL and CISCO have each snuck up and registered new 52-week highs. With ORCL trading for $16.48 and CSCO trading for $22.72, each stock offers us a relatively cheap way to enter into some longer-dated calls. When the time is right to enter into a play, I’ll let you know. For now, hold off until further upside confirmation.

Also noteworthy today is the continued bearishness in everything oil-related. After making the OIH play, a lot of Charter Members got hooked on trading oil — primarily due to the liquidity and extreme price fluctuations. After the OIH dropped down to $130, I thought that would have hit the bottom. But what actually happened is that the OIH moved all the way down to its current levels of $124.41. To my eye, this oil sell-off has gotten a little over-extended, especially when you look at a stock like Marathon Oil (MRO – NYSE).The stock has moved down from $92.00 on August 25^th to its current levels of $73.72. That’s a $20 down-move in less than a month, and I think it’s a little bit of overkill. If I see any signs of MRO finding a support level, keep an eye out for a potential upside call plan on MRO. Until tomorrow,

Lock and load!

*Trading Note: I would have given you stock charts for ORCL, CSCO, and MRO but the website I use for charts (stockcharts.com, which I feel is the best of the best) was temporarily down and I didn’t want to delay the trading alert on ACI. Thanks for understanding.

Sincerely,