Major Move in Utilities

Play PEG Puts Now

By Bryan Bottarelli
Monday, August 27, 2007 12:18 PM EDT
Mon, 27 Aug 2007 16:18:00 GMT

Dear Bottarelli Research Member,

Since our last alert transmission, a major downside formation has occurred in the Dow Jones Utility Average (UTIL). As you can see below, the market’s leading energy companies have fallen from their 50-day moving average all the way down to their 200-day moving average — all in one shot.

UTIL

This is certainly not a good sign for this sector group, and this formation leads us to an immediate put play on Public Service Enterprise Group (PEG – NYSE). The company provides energy and natural gas to commercial, residential, and industrial customers in the Northeastern and Mid Atlantic United States, and as you can see from the chart below, the stock has encountered major resistance at its 50-day moving average.

PEG

If PEG follows the lead of the entire UTIL sector chart, then you can expect the stock to move another $7.00 lower to touch its 200-day moving average. Let’s profit off this downside move using September puts. Here’s the play:

PLAY: Buy the PEG September 85 Puts (PEG UQ) at or under $3.80, good for the day. Current bid/ask spread is $3.30 to $3.60. Place a protective stop limit at $2.00.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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