Bears Selling It Again!

“Short the Rally” Continues

By Bryan Bottarelli
Friday, January 18, 2008 11:24 AM EST
Fri, 18 Jan 2008 16:24:00 GMT

Dear Bottarelli Research Member,

One of my favorite “market bottom” signals occurs when a large majority of market followers all change their views at the same time. For example, since I’m in the newsletter publishing business, I take notice when a fella like Dan Sullivan of The Chartist moves his portfolio to 100% cash. He’s now convinced that we’re in a major bear market. Bearishness has also found its way into the typically bullish Cabot Market Letter. And even Louis Navellier’s Blue Chip Growth Letter is turning bearish. Not only that, but I received a call from an East Coast colleague yesterday — telling me that his “savvy uncle” just sold everything and went to 100% cash. Hmmm.

When I see a collective group of people like this all line up and follow each other into the bear camp, I can’t help but turn a skeptical eye. In other words, it looks like the bears have done their job: They’ve scared some of the smartest bulls into hibernation.

Take this morning, for example. The Dow was trading higher by 170 points, but it took the bears less than two hours to knock it all back down. Amazing. Now, from a trading aspect, this bull/bear debate will most definitely spark more intra-day volatility. But through it all, it’s important that we (as sniper traders) stay unemotional and unattached. If it’s a market bottom, we’ll play calls. If it’s a bear market, we’ll play puts. Who cares if we call it a bear or bull? After all, the idea here is to make money — not to get caught up in a useless debate on market theory. Adopting this approach is critical for longstanding success, especially in a market like this. So that’s exactly what we’ll be doing here in Bottarelli Research. Bearish one day, bullish the next. That’s how to successfully navigate this market! So in that spirit, I’ve uncovered another play similar to our Excel Maritime (EXM — NYSE) calls from yesterday, and it comes in the form of U.S. petroleum refiner Tesoro Corporation (TSO – NYSE).

TSO

As you can see, TSO has gotten clobbered, going from a high of $65 back in late October to just above $35 in recent action. Over the last three days, TSO has tried to break below this $35 level without any success, which leads me to believe that it could be a solid bottom. Then today, TSO was offering a similar upside tick that EXM was giving off yesterday, and this is what caught my attention. Now, with the markets closed Monday for Martin Luther King day, I don’t plan on taking any new trades today. Unless I see an opportunity to buy and sell something all in the same session, I’ll most likely hold off until next Tuesday. Nevertheless, TSO is certainly on my watch list for cheap and explosive February calls.

In terms of our GILD February 50 Calls (GDQ BJ), the stock is testing its 50-day moving average as we speak. And as you can see below, GILD has called this a support level dating all the back to September 2007. Therefore, I’d like to hang in there on these calls going into next week.

GILD

Should GILD pop off their 50-day moving average, we’ll be in fine shape to lock in a nice gain on this position. And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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