Lots of Bark, Little Bite

Neither Bulls or Bears Show Their Hand

By Bryan Bottarelli
Monday, March 05, 2007 3:40 PM EST
Mon, 5 Mar 2007 20:40:00 GMT

Dear Bottarelli Research Member,

The recent intra-day trading patterns are to make a violent market move within the first 30 minutes of trading — and then spend the rest of the day bouncing back and forth between these opening-session parameters.

This was the case today, where the Dow lost 73 points, quickly rebounded to gain 63 points, only to spend the rest of the day waffling within the mid-point of this opening-session volatility. Here is the chart. Look at how today’s candlestick formation has formed up:

DIA

In a market like this, where all the action is happening in the opening moments, it’s wise to do exactly what we’ve been doing: play the volatility on both sides using carefully selected calls and puts, and use anything that moves in our favor to take quick profits. This attack plan worked out well today, as we were able to sell our PTR April 110 Puts (PTR PB) to lock in a 48.65% gainer.

PTR

At the same time, prices are getting very attractive on both our VLO June 60 Calls (VLO FL) and our AGN April 115 Calls (AGN DC), so the time may be coming to add to these positions. But it’s important not to make any irrational trading decisions until we know more about how the markets will react this week. On a year-to-date basis, for example, the Dow Jones Industrial Average is down 1.8%, the S&P 500 is down 0.8%, and the NASDAQ is running exactly flat. So as you can see, even after three months of heavy trading, neither the bulls nor the bears have really shown the true indication of what move is coming next.

The only noteworthy year-to-date performance comes from natural gas, which is up 15%. As the dust settles from last week’s volatility, it might be wise to check out the valuations of some top-line energy plays. But until then, the smartest trading tactic is to remain light and nimble, and look to strike ahead of the next major up or downswing. I wish I had something more exciting to report, but the current market conditions are signaling nothing aside from this temporary holding pattern. I’ll continue to monitor the situation and alert you the moment something has triggered that warrants trading action, but until then:

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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