Addressing the Rally
Get Aggressive: Add to LEH
Dear Bottarelli Research Member,
I’ve spent all morning digging into today’s market rally, and I have a few interesting technical notes to make you aware of. First and foremost, the last two days of market upside have been impressive — no question about it. But regardless if we’re seeing short-covering in an oversold market, back to back 200-point rallies is something that we cannot ignore. But get this:
As I write you, the Dow is approaching a critical resistance level at the 200-day moving average. I don’t know about you, but considering the tremendous amount of market volatility we’ve seen lately, I would have to think that the major market averages encounter downside pressure at this level.
Because of this impending resistance level, I’d like to go ahead and lock in the modest gains that we have on our EXQ December 150 Calls (EXQ LJ). We entered these calls for $5.70 and they’ve traded as high as $6.40 today, so let’s rake our money off the table now.
PLAY: Sell your EXQ December 150 Calls (EXQ LJ) at or above $6.10, good for the day.
In terms of our two put positions, I’m absolutely thrilled to see shares of Diamond Offshore Drilling (DO – NYSE) trade lower on a major market up-day like today. This solidifies my view that this position will be a nice winner, so maintain your DO December 110 Puts (DO XB) for more gains.
Looking at Lehman Brothers (LEH – NYSE), I have to be honest with you. While I did not expect the stock to blast above the 50-day moving average, I certainly think that the stock is out of the woods just yet. After all, the credit problems are far from over, and the news out of Citigroup yesterday (which actually sparked the rally in the financials) is nothing more than a short-term band aid. As a result, I’d like to get aggressive here and add to our LEH December 60 Puts (LES XL).
I admit, this is a bold move, but all it’ll take it one market down-day (perhaps sparked by news of another massive write-down) to push all the brokerage and banking stocks lower again — and I want to be sure that we’re positioned to profit off any coming weakness. Not only that, but a quick look at the chart shows that LEH is now approaching a resistance level at its 200-day moving average, and this could also be a catalyst that pushes shares lower. Based on that, I’d like to add to our position now.
PLAY: Buy more LEH December 60 Puts (LES XL) at or under $2.40, good for the day. Lower your protective stop limit to $1.10.
Lock and load!
Sincerely,
© 2012 CSR Group, LLC. All rights reserved. Published in USA.
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