Not Buying It

Nevertheless, CMG Calls Look Strong

By Bryan Bottarelli
Tuesday, September 11, 2007 10:56 AM EDT
Tue, 11 Sep 2007 14:56:00 GMT

Dear Bottarelli Research Member,

This is the most un-inspirational 140-point market rally I’ve ever seen. Sure, the advance/decline line shows a 3 to 1 upside advantage, but a quick look at the Dow chart shows that we’re still in danger of probing further to the downside. As you can see below, the 50-day and 200-day averages are converging — putting the Dow within a tight range that could lead to strong intra-day volatility. Throw into the equation a critical Fed meeting next Tuesday, and we want to be sure that we remain positioned to the downside.

INDU

Fortunately, despite today’s upside move, both of our latest put positions are trading right at our entry prices. The CLF October 70 Puts (CLF VN) and the PSA October 75 Puts (PSA VO) are $3.60 and $4.80 respectively, so maintain each position.

CLF

At the same time, maintain your FCX October 90 Calls (FCX JR) as well. Gold continues to rally, and FCX remains above its 50-day moving average. The combination of these two indicators means that a sizable upside move could be on the horizon, so I want to remain positioned in October calls to capitalize on this. Hold.

FCX

Now, despite my downside bias, let’s quickly piggy-back McDonald’s (MDC – NYSE) news and enter a new upside call play. Yes, I still feel the markets could drop, but that doesn’t mean that certain stocks will remain strong — and with MDC reporting today that August same-store sales rose 8.1% worldwide, this offers a strong signal that the consumer has yet to negatively affect major restaurant stocks. On this news, shares of McDonald’s rose 3.1%, but the more powerful play here comes in the form of Chipotle Mexican Grill (CMG – NYSE).

CMG

As you know, McDonald’s used to own CMG before spinning it off — which tells me that the same successful management techniques driving McDonald’s stock values are also applicable to CMG. And if MDC is experiencing unprecedented success, then I bet the same remarkable results will also show up on the leaner, meaner & faster-growing Mexican chain — and this warrants a new October call play.

As you can see from the chart, CMG has pulled back recently — but today’s news from McDonald’s could be the catalyst that triggers CMG’s next upside run. Therefore, let’s get positioned to quickly ride this upside momentum using October calls. Here’s the play:

PLAY: Buy the CMG October 100 Calls (CMG JT) at or under $7.50, good for the day. Current bid/ask spread is $7.00 to $7.40. Place a protective stop limit at $3.40.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

© 2012 CSR Group, LLC. All rights reserved. Published in USA.

Information, opinion, research, and commentary contained herein is obtained from sources believed to be reliable; their reliability, however, cannot be guaranteed. The maxim of Caveat Emptor applies — let the buyer beware. Bottarelli Research does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment.

Investments recommended in this service should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Bottarelli Research reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscriber’s initials will be used unless express written permission has been granted to the contrary.

CSR Group, LLC expressly forbids its writers from having a financial interest in any security recommended to readers. Furthermore, all employees and agents of CSR Group, LLC and its affiliate companies must wait 24 hours before following a published recommendation.

Bottarelli Research alerts contain time-sensitive information, and are published and distributed to members with urgency. Because of this, not all published materials can be adequately proofread, and an occasional spelling or grammar error may exist.


Other Options Alerts From September 2007