Your Friday Wrap-Up

Why this Rally is Suspect

By Bryan Bottarelli
Friday, August 31, 2007 2:14 PM EDT
Fri, 31 Aug 2007 18:14:00 GMT

Dear Bottarelli Research Member,

I mentioned this morning that it was going to be a wild day.

So far, that’s certainly the case.

The big news leading into today’s trading session came from FED Chairman Ben Bernanke, who said that the Federal Reserve is prepared to act as needed to prevent the turmoil in the financial markets. But the bigger news actually came from President Bush later in the morning, who offered new proposals to expand the role of the federal government to curb the increasing level of mortgage defaults. It’s this unexpected Presidential news that sparked today’s low-volume market rally.

INDU

Now here’s the thing: I would not place too much emphasis on today’s upside move. For one, today’s Presidential news is a one-time catalyst that came on a day where most traders were off the floor. Therefore, today’s rally is coming on low volume. Furthermore, as you can see from the Dow chart, today’s upside move is leading right up to the Dow’s critical 50-day moving average. If the Dow fails at this level early next week, you could expect another round of selling pressure — especially once all of the traders get back to their desks next Tuesday and notice the Dow’s inability to break through this level. So for now, the game plan is to keep a relatively light ledger leading into the three-day weekend.

If you happen to still be holding the FLR September 125 Calls (FLR IE) or the POT September 90 Calls (PYP IR), you’re getting a great opportunity to lock in a really nice gainer today, so be sure to take your profits off the table. Both stocks continue to look bullish going forward, so I’ll keep a close eye on them for any new call play opportunities.

POT

Unfortunately, our PCP September 140 Calls (PCP IH) have not experienced the same level of upside momentum, so let’s close off that position. And like I mentioned this morning, I’d still like to maintain some downside exposure using our MCO September 50 Puts (MCO UJ) and our PTR September 140 Puts (PTR UH). Although PTR has moved higher today, the chart still signals an inability for a break-out above the 50-day moving average. Therefore, I still feel the next major move will be lower — so I’ll continue to monitor the position for the benefit of those who are still holding.

PTR

Until next Tuesday, enjoy your long 3-day weekend. And as always:

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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