Two Charts, One Theme: Gaps

WFR and AMZN Making Big Moves

By Bryan Bottarelli
Friday, April 27, 2007 10:37 AM EDT
Fri, 27 Apr 2007 14:37:00 GMT

Dear Bottarelli Research Member,

Let’s take a look at two stocks that are making completely opposite moves. The first stock is MEMC Electronic Materials (WFR – NYSE), a breakthrough solar wafer firm that we’ve successfully played in the past. Last evening, WFR reported that their first-quarter profit doubled on 29% percent revenue growth, but cautiousness in the semiconductor market (plus a downgrade from Credit Suisse) is absolutely crushing the shares today. As I write, the stock is off over $9.00. That’s a 14% drop!

WFR

As you can see by the chart, this single-day move has pushed WFR all the way back do its 50-day moving average. Now here’s the thing: If WFR finds support at these levels, we could have a “downside gift gap” on our hands — which would support adding longer-dated calls to our ledger. So let’s keep a close eye on WFR and see what happens early next week.

On the flipside of that coin, we find Amazon.com (AMZN – NASDAQ) which has rallied 40% over the last two days. Unreal!

AMZN

As a general rule, all gaps (whether upside or downside gaps) eventually get filled, which means AMZN could soon witness shares back in the $50 level. Thinking on an even more logical level, if I were holding AMZN stock which rallied 40% over two days — and now it appears like the upside momentum is over — I’d take my profits off the table immediately. So let’s go ahead and add some AMZN puts to our ledger to take advantage of the inevitable day when the stock realized that we’re no longer in the “glory days” of 1999 and snaps back into reality. Here’s the trade:

PLAY: Buy the AMZN June 60 Puts (ZQN RL) at or under $3.30, good for the day. Current bid/ask spread is $3.00 to $3.20. Place a protective stop loss at $2.00.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

© 2012 CSR Group, LLC. All rights reserved. Published in USA.

Information, opinion, research, and commentary contained herein is obtained from sources believed to be reliable; their reliability, however, cannot be guaranteed. The maxim of Caveat Emptor applies — let the buyer beware. Bottarelli Research does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment.

Investments recommended in this service should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Bottarelli Research reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscriber’s initials will be used unless express written permission has been granted to the contrary.

CSR Group, LLC expressly forbids its writers from having a financial interest in any security recommended to readers. Furthermore, all employees and agents of CSR Group, LLC and its affiliate companies must wait 24 hours before following a published recommendation.

Bottarelli Research alerts contain time-sensitive information, and are published and distributed to members with urgency. Because of this, not all published materials can be adequately proofread, and an occasional spelling or grammar error may exist.


Other Options Alerts From April 2007