Pre-Market Alert: More Selling

Has a Recession Now Been Priced In?

By Bryan Bottarelli
Wednesday, January 16, 2008 9:20 AM EST
Wed, 16 Jan 2008 14:20:00 GMT

Dear Bottarelli Research Member,

I’m back from my quick east-coast trip — only to see that the markets have given way to a title wave of selling pressure. To my eye, there are two major questions being asked right now. The first question, “Is the worse yet to come?” And the second question, “After a 10% pullback, has a recession now been priced into the market?”

Right now, it appears like the answer to both questions is “yes.” On the technical side, the major market average charts look very vulnerable. And even though the markets are probably pricing in a recession, that doesn’t mean that we can’t move even lower. In fact, you’ve seen this yourself. It seems like every point the markets gains one day, it gives back two points the very next — and yesterday’s red candlestick formation on the Dow chart looks miserable. As you can see, the Blue Chip average has now closed at a new low point for 2008, and this morning’s pre-market trading indices that we’ll fall even further at the open.

INDU

Make no mistake: We must continue to carry a downside bias to our trading. Resist the urge to pick a bottom. There’s a very good chance that some market stimulant will come into play and shoot the markets higher, but pin-pointing when that’ll happen will be a futile attempt. Play it down — and short any rally. That’ll be our calling card for the immediate future. And if we need to switch gears, we have the flexibility to transition over into a call position very quickly. Calls on the agricultural sector, for example, look like a good way to participate in any upside move and protect yourself against any violent selling pressure. And of course, we’ll continue to adopt our “sniper” trading approach of locking in immediate profits at the 15% to 20% level.

Although we were stopped out of our PBR February 120 Calls (PMJ BD), we were able to lock in gains on our BEN February 100 Puts (BEN NT) and our DIA February 128 Puts (DAW NX).If you have yet to lock in gains on these two positions, take you money at the open of today’s trading. And if you’re still holding your DECK January 130 Puts (QUK MF), time decay is now a major factor, so look to sell this position on any continued market weakness as well.

I’ll follow up later this morning with some potential play candidates, but until then:

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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