Yet Another Brutal Open

Dow Futures Down 220

By Bryan Bottarelli
Wednesday, January 23, 2008 9:24 AM EST
Wed, 23 Jan 2008 14:24:00 GMT

Dear Bottarelli Research Member,

I’m back from my jury service (I didn’t get called to serve) so let’s dive right back into the markets. As I watched the action yesterday from my Blackberry in the jury lounge, it was a good thing that we sat the day out. As I’m sure you know, the Dow opened 465 points lower buy only closed the day only 128 points in the red. In my view, that’s one of the most bullish 128-point losses you’ll ever see. Here’s how the chart looks:

INDU

As you cans see, the Dow took quite a dive in the morning before recovering 70% of those losses by the close. Like I expected, this move was indeed similar to what happened back in August 2007 — but now the differences will come out in what happens the day after. Back in August, the markets rallied strongly the very next day. But as I write you this morning, the futures are once again looking brutal — and this leads me to believe that we might re-test yesterday’s lows in the early moments. So, as we begin another volatile trading session, I may make one new put play to capitalize on the morning weakness — but if we do many a put play, I’d like to have it closed off by the afternoon. One company in particular that could be ready for puts is Sears Holdings (SHLD – NASDAQ).

SHLD

As you can see, the stock jumped $10.00 yesterday before experiencing resistance at its 50-day moving average. If the markets dump again at the open, there’s a good chance that all of Sears’ gains from yesterday get wiped out — and this would present a nice opportunity to add the SHLD February 100 Puts (KTQ NT) to our ledger. These puts lost 50% of their value yesterday, making them an attractive buy if SHLD surrenders all of yesterday’s gains. I’ll follow up with any specific buy alerts once the markets open — but that’s just a little insight into my trading game plan going into today. More to follow.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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