What Else is New?

Another New High: Can This Really Last?

Dear Bottarelli Research Member,

The market’s up again — so what else is new?

In a stunning display of strength, the major market averages debunked the old adage “Sell in May and go away” and continued to put in a series of new all time highs. So as the calendar flips over to June, will we witness a “June Swoon” or will the upside momentum blast forward without any sign of fatigue?

As I’ve mentioned before, this market is dangerously high at these levels — and it would not take much to trigger another correction similar to what happened in February. As a result, I would be fiscally irresponsible of me if I didn’t have some form of downside protection like the SPY June 150 Puts (SYH RT).

Of course, the market’s upside momentum has pushed the value of these puts down to $0.45 per contract today, but keep in mind the purpose of this position. Similar to car insurance premiums, we’re paying to carry a downside put position like this to protect us during any market crash. If the SPY corrects 4% (which it could easily do), these puts could trade as high as $2.30. And if we witness a 10% correction (which would be a crushing blow but not outside the realm of possibilities) these puts could trade as high as $5.10. That’s an amazing 1,034% increase from current levels, so as you can see it’s worthwhile to own a small position in these protective contracts and participate in any downside move.

And at the same time, owning these puts also offers us the comfort of participating in the market’s upside run (which we have successfully done this week via calls on POT, FCX, and WFT). Despite the fact that the markets are rocketing higher and the SPY puts are inching downward, keep in mind their purpose — which is to offer you protection during any knee-jerk sell-off or correction.

Let’s also maintain our CTRP June 75 Puts (QCT RO). The Chinese markets dropped another 100 points overnight, which tells me that some levels of vulnerability could be creeping on the international markets — and this could spark a further down-move on CTRP. Maintain the CTRP June 75 Puts (QCT RO).

Looking to next week, we could have another call opportunity in Tesoro Corp. (TSO – NYSE).Similar to the great winner we just hit on POT, Tesoro split 2 for 1 which could attract a whole group of investors to the stock. When it’s time to act, I’ll let you know.

At the same time, we could also have a downside move on Bear Stearns Companies (BSC – NYSE).As you can see, the stock is testing a very critical level at the crossing of the 50-day and the 200-day moving averages. Failure at this level could mean a strong down-move, so I’ll keep any eye on BSC for a possible put play. It’s commonly known that BSC is more heavily involved in the high-risk mortgage market than other brokers, so a continued housing slump could be a possible downside trigger.

So until next week, have a good weekend! But before signing off, please take a moment to read a quick operational update:

*ADMINISTRATIVE NOTE: I’m happy to report that our new web hosting company is fantastic — and they’re delivering our trading alerts faster than ever before. At the same time, our newly-implemented RSS technology is also proving to be quite effective — as our trading alerts appear instantly in your RSS feeder the moment they are published to our website. If you have yet to add the RSS technology, it’s free for all active members, so be sure to take a moment this weekend and follow our set-up guide: http://www.bottarelliresearch.com/RSS.asp?#RSSSetupGuide.

Also be sure to note the new step that we just added, which involves configuring your RSS to poll the Bottarelli Research RSS feeds every 60 seconds. To do this, set the Refresh Interval to “60” to ensure the best performance. If you have downloaded the RSS technology and find that the alerts are hitting your inbox before the RSS picks them up, then I suspect that your RSS is refreshing every 15 minutes or so. Changing the checking time to 60 seconds will greatly improve this performance.

Another Important Performance Note: To further improve the delivery of our trading alerts, we will begin sending out our trading alerts from a new email address. Starting in 2 weeks, we still stop sending alerts from bryan@bottarelliresearch.com and begin sending alerts from alert@bottarelliresearch.com. To ensure that you continue to receive all Bottarelli Research e-mails to your inbox (and not your spam, junk, or bulk mail folder), please add alert@bottarelliresearch.com to your e-mail address book and/or safe senders list so this new e-mail address is white-listed. We also recommend you white-list bryan@bottarelliresearch.com if you haven’t already done so.

I’m alerting you of this now so you have plenty of time to make this simple edit ahead of time. And as always…

Lock and load!

Sincerely,