Important Tactical Positioning

Technology Getting Buy-Side Interest

Dear Bottarelli Research Member,

It’s obvious that money is flowing out of the oil sector.

With oil prices now down to $54.36 a barrel, the “fast money” of hedge funds is rushing to the exit signs – which brings to life an important tactical positioning question:

Q: If money is leaving the oil sector, then where is it going?

According to my market scans, the money is now flowing back into technology – which brings so life some interesting trading opportunities. Take NVIDIA (NVDA – NASDAQ), for example.

Without question, NVDA’s graphics processing units (GPU’s for short) are one of the best graphics chips on the market, as their GeForce products serve family personal computers and their popular nForce products serve professional workstations and servers.

Chart-wise, the stock has been engaged in a very nice up-trend since early September – but has since fallen back under its’ 50-day moving average (noted in blue). But as you can see, today’s candlestick formed an engulfing pattern – which is an early signal that the near-term weakness may be coming to an end.

Another interesting technology chart comes in the form of SanDisk (SNDK – NASDAQ).

The worldwide leader flash storage cards has been under pressure lately – but the new inflow of money into the tech sector is pushing shares back over its 50-day moving average – a signal that SNDK has tested support at these levels and held strong.

Another new opportunity comes in the form of Lamar Advertising (LAMR – NASDAQ).

As a member of the NASDAQ 100, LAMR popped up today after hitting a fresh 52-week high of $67.91. To be honest, the company is far from sexy. In fact, it’s certainly not a technology stock – but it’s still a strong candidate on my bullish list.

Lamar provides outdoor advertising services in the United States and Canada – offering 151,000 billboards and 98,000 logo and transit displays across 44 states and Canada. The chart is undoubtedly strong – and it looks to me like this one flies under the radar among other poplar stock names on the NASDAQ 100 Index.

So, with three new upside candidates showing sustainable upside growth, what’s the best play? To be honest – they all look good. But to my eye, there are two trades that each offer their own unique balance of risk vs. reward.

The first is a “turnaround” play on SNDK using the SNDK April 47.5 Calls (SWF DW). Currently trading between $4.10 and $4.20, these calls offer a nice balance of liquidity, time, and upside potential – as the April expiration and out-of-the-money nature of the play makes it a strong candidate. If SNDK moves up $5 to $6 over the next 6 weeks, we could have a double on our hands, so let’s add this position to our ledger now.

PLAY: Buy the SNDK April 47.5 calls (SWF DW) at or under $4.30, good for the day. Place a protective stop loss at $2.60.

The second play is a “hidden” play on LAMR using the LAMR April 70 Calls (LJQ DN). With the stock hitting new 52-week highs, you’d expect to see a lot more trading action on the April 70 calls, but nobody out there seems to recognize the potential of this option. Currently trading between $2.05 and $2.25 per contract, these calls could shoot aggressively higher on any sustainable LAMR upside run. A move from LAMR $67.28 up to $70.00, for example, could value these calls around the $4.00 level, making for a great holding into April. So let’s add this one to our ledger as well.

PLAY: Buy the LAMR April 70 Calls (LJQ DN) at or under $2.40, good for the day. Place a protective stop loss at $1.20.

All the while, let’s keep a close eye on NVDA for a trading possibility as well. And as a quick follow-up, it looks like my trigger finger twitched too early on our Apple Computer (AAPL – NASDAQ) trade, as the stock has continued to shoot higher in today’s trading.

But just so you know my thinking process, this recent market has been notorious for selling off any big advancers – where a stock that was up big one day ends up experiencing selling pressure the next day (if not by the close of that day’s trading!)

With that back-drop, my intention was to lock in our profits without exposing you to undue levels of risk. Over the long run, I firmly believe this mentality will result in more gains than losses. And of course, I have to go back to my days on the CBOE, when my mentors used to sold me for second-guessing myself by saying (er, yelling rather), “Dammit Bryan, never second-guess taking a profit!”

In many respects, the same lesson applies here.

Lock and load!

Sincerely,