Stand Pat

Range Bound Trading Ahead

By Bryan Bottarelli
Wednesday, October 31, 2007 2:38 PM EDT
Wed, 31 Oct 2007 18:38:00 GMT

Dear Bottarelli Research Member,

This is probably not what momentum traders like us want to hear, but the best course of action right now is to stand pat with our current holdings.

Since the Fed’s decision to cut 25 basis points was already priced into the markets around lunchtime, this afternoon’s news will most likely spark range-bound trading for the rest of today’s trading session. As a result, we don’t have the necessary tailwinds (either up or down) to make any new plays — and that means the best advice I can offer right now is to simply stand aside.

One look at the Dow chart and this range-bound trading becomes very clear. Since Fed days often lead to long candlestick formations, today’s Dow tick (noted in yellow) is clearly not sparking the type of moves we’ve witnessed in the past. Therefore, the choice is simple. If a trade is not available, I’m not going to force it.

INDU

Now don’t get me wrong. I’d love to play calls on a company like Excel Maritime Carriers (EXM – NYSE). As I mentioned yesterday, the entire dry-bulk shipping sector has experienced a big time haircut, but the single-day losses look severely over done. Therefore, EXM November 75 Calls (EXM KO) look like an attractive play at these levels, but I want to make absolute sure we’re not jumping the gun. So for now, refrain from entering this position.

EXM

If anything, you may get a second opportunity to sell your NILE November 80 Puts (JWU WP), so be sure to lock in your profits whenever you can. I’ll continue to closely monitor the entire market situation, and you’ll be the first to know the moment a trading opportunity comes up. But until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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