More Volatility

Stand Pat for a Day

By Bryan Bottarelli
Monday, August 06, 2007 2:47 PM EDT
Mon, 6 Aug 2007 18:47:00 GMT

Dear Bottarelli Research Member,

The intense intra-day volatility continues. As I write, the markets have put in a strong mid-day reversal that pushed the Dow up 160-points. But even with this pop, I still don’t trust the sustainability of this move. After all, the Federal Open Market Committee will meet tomorrow to consider U.S. monetary policy — and you better believe Ben Bernanke will add some strong wording about sub-prime mortgage sector.

Although the federal funds rate hasn’t changed from 5.25% since June 2006, it won’t take much for the markets to react negatively to any language changes. That’s why I’m still skeptical of today’s 160-point advance — and would like to maintain as much downside exposure as we possibly can. Unfortunately, this put position no longer includes our MA August 125 Puts (MA TE). As the markets bounced — so has MA — which triggered our protective stop limit at $3.50.

MA

But at the same time, we are still holding our United States Steel August 90 Puts (X TR), which has not recovered alongside the rest of the major market averages. This points to continued weakness into tomorrow, so maintain this position for further downside action.

X

Given the tremendous amount of intra-day “churning” we’ve seen recently, it’s probably a good idea to sit tight on any further trades until after the Fed has made their policy announcement. There are plenty of great trading opportunities out there, but there’s no sense getting whip-sawed by programmed buy and sell orders that fuel the violent intra-day moves. As a result, we’ll go ahead and let the dust settle a little bit before initiating our next play. Until then…

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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