The Dow’s Big Test

Also, Take FCX Profits

By Bryan Bottarelli
Thursday, September 13, 2007 11:00 AM EDT
Thu, 13 Sep 2007 15:00:00 GMT

Dear Bottarelli Research Member,

Once again, the Dow is getting ready to make a very important test at the critical 50-day moving average. If the Dow fails at this level, it would re-set the “troubling sign” that I highlighted in this past Monday’s alert — and things could get even worse if the market reacts negatively to what the Fed does next week.

INDU

Therefore, it’s a smart idea to maintain downside exposure using the CLF October 70 Puts (CLF VN) and the PSA October 75 Puts (PSA VO). Although each trade is currently down from our entry prices, you’ll be glad you own these puts the moment the market begins to sell off. After all, with the Dow testing the 50-day moving average as we lead into the most important Fed meeting of the year, I’d have to say that the likelihood of a big sell-off is greater than a big rally. And as you can see from the CLF and PSA charts, we could very well witness a “false breakout” on both stocks, which would lead to selling pressure going forward. Take a look:

CLF

PSA

Meanwhile, as we closely monitor how the Dow reacts to this critical 50-day level, let’s take this opportunity to lock in a profit on our FCX October 90 Calls (FCX JR). These calls traded as high as $8.10 in today’s trading, so lock in your profits now.

FCX

PLAY: Sell your FCX October 90 Calls (FCX JR) at or above $7.90, good for the day.

At the same time, continue to hold your UA October 65 Calls (UA JM) for a pending upside move. But if you’re still holding the PTR September 140 Puts (PTR UH), it’s time to close this one out for good. As you can see from the chart below, PTR is clinging to its 50-day moving average without engaging in an upside or downside breakout. As a result, we’re left holding a position unable to move in either direction, so let’s close it out and move on.

PTR

As always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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