Add X Puts

Also, Close Out CG and Add to PBR

By Bryan Bottarelli
Thursday, December 13, 2007 11:42 AM EST
Thu, 13 Dec 2007 16:42:00 GMT

Dear Bottarelli Research Member,

Throughout most of the morning, the bulls have tried to make a stand and keep the markets from going into free-fall, but within the last few minutes, it appears like they could be losing their strength. Looking today at the SPX chart, you now see a breakdown below the 200-day moving average. This is a troubling sign.

SPX

But then again, who knows what’ll happen with all this market volatility, especially leading into today’s close? After all, if the indices do happen to find support here, that would establish a higher low, and ultimately give the bears something to rally off leading into the close of the 2007 calendar year.

But let’s not get ahead of ourselves.

As of this afternoon, the markets are giving off a bearish signal, so that supports adding a new downside put to our ledger. And the one stock that’s giving off a major double-top formation today is United States Steel (X – NYSE).

X

As you can see, X has been on quite a strong run lately, but today’s failure just south of the $115.00 level is exactly the same trading pattern that occurred in late October. As a result of this October failure at $115.00, shares of X fell $30.00 in less than a month, and today’s technical action could signal the beginning of a similar downside move. Let’s play this move using December puts. Here’s the play:

PLAY: Buy the X December 110 Puts (X XB) at or under $4.40, good for the day. Current bid/ask spread is $3.90 to $4.20. Place a protective stop limit at $2.30.

I’d also like to comment on our two January call positions. As you know, I purposely chose January calls so that we can withstand any momentary market weakness, and given the volatility we’ve seen lately, all it takes is one strong day (or even one strong hour) to blast any call positions back into the money. Having said that, I’d like to take a different tactical approach to CG and PBR. Starting with our CG January 90 Calls (CG AR), they have officially hit our $1.70 stop loss so I’d like to close this position out.

CG

As you can see from the chart, CG could be finding support off its 50-day moving average, which could trigger another upside push into January. But my fear is that the stock cannot rally hard enough to warrant the risk of holding it for any longer, so let’s trim our upside exposure and cut this one loose.

On the other hand, I’d like to add to our PBR January 115 Calls (PMJ AZ). Today’s slight down-tick isn’t enough to scare any bulls away, especially since PBR offers us international exposure to (what many consider) one of the top emerging countries in the world. Combine that bullishness in Brazil with the two new oil rigs that PBR is adding, and the stock should continue to be strong leading into 2008. Therefore, I’d like to use today’s price dip to add to our PBR calls.

PBR

PLAY: Buy more PBR January 115 Calls (PMJ AZ) at or under $5.00, good for the day. Current bid/ask spread is $4.80 to $5.00. Lower your protective stop limit to $2.40.

*REMINDER: And finally, don’t forget that time is quickly running out on our special discounted renewal offer. Remember, this offer is only good until December 24th, and if you look at a calendar, you’ll see that’s a week from next Monday! Time certainly flies during the holidays, so you should definitely take advantage of this special offer now, while it’s fresh in your mind. To lock in this discounted membership rate, simply follow the special link below and select the 9-month term titled "End of Year Special."

https://www.bottarelliresearch.com/renew/?service=opt&offer=E0R2663KRR

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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