Another Weak Day

Is An Afternoon Rally Coming?

Dear Bottarelli Research Member,

The Dow is down another 113 points as I write, extending the Blue Chip’s two day losing streak to 200 points. This selling pressure is providing a big boost for the SPY August 150 Puts (SYH TT) that we “rolled” into yesterday for $2.15 per contract. With today’s additional downside pressure, these puts are now trading for $2.70, and they’re looking to move a lot higher. If the last two days mark the beginning of an early summer correction, the SPY could move all the way down to its 50-day moving average at 148. A move of this magnitude could increase your puts all the way up to $4.50, good for a 110% gain off yesterday’s entry price. Maintain this position for more gains.

We also hit another nice downside winner on our Bear Stearns (BSC – NYSE) play. We were able to sell the BSC July 150 Puts (BSC SJ) for a quick 20% gainer this morning, and our sell prices are still available now. Be sure to take your profits if you haven’t already done so.

While scanning for additional put plays, Genentech (DNA — NYSE) registered as a new 52-week low today. This prompted me to study some of the other large-cap biotech names and I’ve encountered a rather interesting chart formation on both Amgen (AMGN – NASDAQ) and Celgene (CELG – NASDAQ).

Beginning with AMGN, the stock has been extremely weak in recent months, and right now it’s tapping the ceiling of its 50-day moving average. When you have a stock stuck in a down-trend like this, a failure at the 50-day moving average typically indicates another move down past the latest low, and this could equate to a move under the $52.50 level set in mid-May. That’s $5.00 lower than current levels, so I’ll be keeping a close eye on AMGN. A 50-day MA failure could spark a new put play.

On the flipside of that coin we find Celgene (CELG – NASDAQ).Unlike Amgen, CELG has been engaged in an extended up-trend which is now tapping the bottom of its 50-day moving average. If this level serves as support, CELG could rally back above its latest high at $66.00 which is $5.00 above current levels. I’ll be also keeping a close eye on CELG because support here at the 50-day MA could spark a new call play.

*As a side note, CELG’s drug Revlimid (which can retail for more than $6,000 a month) is quickly becoming the first choice of doctors treating multiple myeloma patients, and the extended acceptance and prescribe-rate of Revlimid could be the catalyst that pushes CELG higher.

It’s also wise to study stocks that could quickly snap-back on any bullishness leading into the close of the week. Leading that group is Tesoro (TSO – NYSE).

As you can see by the chart dating back to February, TSO very rarely experiences three red candlestick days in a row. In fact, I can only count one minor instance where TSO logged three consecutive red-bodied candles, so if I see any strength leading into today’s close you could find a new upside call play on TSO.

Two other stocks that could offer great snap-back tendencies are two names that we’ve successfully played in the past: Crocs (CROX — NASDAQ) and Marathon Oil (MRO – NYSE).Starting with CROX, the powerful up-trend is unmistakable, and the gains could extend themselves into June 15^th. Why? That’s when CROX is scheduled to split 2 for 1, and that’s always a bullish sign.

Sticking with that same theme, Marathon Oil (MRO – NYSE) is also set to split 2 for 1 on June 19^th, so any extended downside pressure could ignite a quick opportunity for call profits.

Looking at our open positions, I’d like to maintain both the SII July 60 Calls (SIK GL) and the CTRP June 75 Puts (QCT RO). An oil bounce could quickly turn SII back into a winner, and the position is currently only $0.20 off our $1.70 entry point.

Also, I can’t help but think that the bottom is about to fall out on CTRP. Although our puts are down from our $2.50 entry price, they have traded as high as $2.20 today. So all we need is one strong pullback and we’ll be in the money. Filling the gap at the $72.50 level could be all it takes.

I’ll keep a sharp eye on all the potential formations mentioned above and alert you when it’s the right time to strike. Until then…

Lock and load

Sincerely,