Add CTSH Puts

Dow Could Drop Another 300

By Bryan Bottarelli
Tuesday, February 27, 2007 11:47 AM EST
Tue, 27 Feb 2007 16:47:00 GMT

Dear Bottarelli Research Member,

With the Dow down 155 points as I write, our DIA March 126 Puts (DAW OV) have traded as high as $1.85 today, good for a nice 32% gainer. That’s certainly a nice gain, but here’s the thing: If this is a true market “correction,” then we have a lot more downside to come. You see, even at the smallest levels, a market correction should peel off 3%, but today’s down-move has only taken us down 1.18%. In other words, we could witness another 300 points of downside before the corrective phase is over — so maintain your puts for more gains.

DIA

In the meantime, let’s add a new put position on Cognizant Technology (CTSH – NASDAQ).The company provides information technology (IT) services in North America, Europe, and Asia — and the chart signals three bearish patterns all taking shape simultaneously.

CTSH

First, CTSH has established a very strong ceiling at $95. As you can see, the stock has tried on eight separate occasions to break through the $95 level — all of which resulted in failures. Second, CTSH has an un-filled gap between $85 and $87.50 which will most likely get filled on any extended market weakness. And third, the filling of this gap coincides with a test of the 50-day moving average at the $85 level. Toss into the equation a weak market and you have all the makings for a new put play on CTSH. So let’s get positioned now:

PLAY: Buy the CTSH April 90 Puts (UPU PR) at or under $2.70, good for the day. Current bid/ask spread is $2.50 to $2.60. Place a protective stop loss at $1.70.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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