Pre Market Alert: An Opening Pop

Will It Last?

By Bryan Bottarelli
Monday, January 14, 2008 9:19 AM EST
Mon, 14 Jan 2008 14:19:00 GMT

Dear Bottarelli Research Member,

As of last week, the Dow had retraced 11% off its October high. In fact, the Dow has lost 5% over the last eight trading days — making the beginning part of 2008 the Dow’s worse three-week loss in four years! With such intense selling pressure to begin a new calendar year, it’s reasonable to see a pop at the open of today’s trading. But when you consider last week’s trading saw two days of 200-point Dow losses and two days of 100-point Dow gains, it’s clear that there’s no telling how long this morning’s gains will last. After all, intra-day volatility continues to be the dominating market factor, and therefore I’d like to continue maintaining a position of both calls and puts — using our “sniper” tactic to lock in gains the moment your positions hit the 15% to 20% profit mark. This strategy worked very nicely with our DIA February 128 Puts (DAW NX), as we used Friday’s end-of-day weakness to lock in a quick 20% gainer. Let’s be sure to continue using this strategy on our BEN February 100 Puts (BEN NT) and our PBR February 120 Calls (PMJ BD) as well.

Another interesting observation: All of this recession talk is causing a “flight to safety” into the healthcare sector, and this has caused the Pharmaceutical HOLDRs (PPH – AMEX) to gain 5.7% over the last five trading days. But instead of trading slow-moving companies, like Eli Lilly, Johnson & Johnson, or Schering Plough, we’re seeing this trend extend into the Biotech sector as well. Speculative traders who want the safety of the healthcare sector but who also want the higher profit potential of fast-moving trades are re-igniting strength in names like Celgene (CELG – NASDAQ), Genentech (DNA – NYSE), and Gilead Sciences (GILD — NASDAQ), so I’ll be watching this group for an upside call play later in the week.

GILD

*EDITOR’S NOTE: I will be traveling today and tomorrow, so there will be no additional alerts over the next 48 hours. And to be honest, I couldn’t have picked a better time. After all, as I noted above, the intra-day volatility continues to be tremendous, so it makes tactical sense to sit back and simply let the major market indices sort themselves out. I’ll be back with you first thing Wednesday morning and we’ll kick-start our trading from there. Until then, maintain your “sniper” tactical approach — and as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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