Dow Off 300

Global Meltdown Part III?

By Bryan Bottarelli
Tuesday, February 05, 2008 2:32 PM EST
Tue, 5 Feb 2008 19:32:00 GMT

PLAY: Buy the LEH March 55 Puts (LES OK) at or under $3.00, good for the day. Place a protective stop limit at $1.80.

Dear Bottarelli Research Member,

On Monday January 21st, the U.S. markets were closed for Martin Luther King day, but I sent you an alert titled, “Urgent Note: Global Free-Fall.” This note, as you can recall, warned that the global indices were taking a beating, and the U.S. markets were next to get punished. Then on Tuesday January 22nd, I followed up with an alert titled, “Global Meltdown: Part II.” And moments later, the Fed issued their emergency three-quarter point rate cut, yet this move failed to calm the markets (at least for that particular morning). Now, as I write you today, the Dow has just registered yet another 300-point loss, so I must ask myself, “is this the beginning of global meltdown part III?”

DJX

The market internals certainly don’t look promising. In fact, I was going to show you shares of Garmin (GRMN – NASDAQ) and make the case that the stock can easily re-test its January lows just above the $50.00 level. But the more I looked at stock after stock, it became obvious that every stock chart I was looking at fell into this same category! So I feel now it’s time to revert back to our mental mindset in early January.

GRMN

Do you remember the mentality of January? Whenever fear-based (or emotional) selling pressure occurs on Wall Street — nothing is spared. And now, we might once again be entering into this period of across-the-board weakness. In fact, the ratio of stocks advancing to declining today stands at 10 to 1. And in a scary and shocking parallel, the mega-merger of AOL and Time Warner marked the officinal top of the tech boom in 2001. And just this week, Microsoft placed an unprecedented bid for Yahoo.

Now, as much as I’d love to issue a new DJX put play (as I mentioned earlier today) I think we have a better risk/reward situation in shares of Lehman Brothers Holdings (LEH – NYSE). As you can see below, LEH failed at its 200-day MA yesterday and appears to be failing at its 50-day moving average today. This double-whammy failure at both critical support levels could easily spark a $10.00 down-move to LEH’s prior support at $50.00, so let’s enter into LEH March puts to profit off any further downside.

LEH

PLAY: Buy the LEH March 55 Puts (LES OK) at or under $3.00, good for the day. Place a protective stop limit at $1.80.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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