Add CRM Puts

Plus: Maintain DIA and UNP Positions

By Bryan Bottarelli
Thursday, February 14, 2008 11:45 AM EST
Thu, 14 Feb 2008 16:45:00 GMT

PLAY: Buy the CRM March 55 Puts (CRM OK) at or under $4.40, good for the day.

Dear Bottarelli Research Member,

After a strong week of upside, the markets are now threatening to reverse course and move lower. In fact, a quick look at the DIA chart shows that today’s red candlestick formation is very similar to the bearish formation that sparked the intense selling pressure in early February. And since today’s bearish candlestick is below the last breakdown levels from early February, this means we’re seeing a lower high — and that’s never a good thing for a market attempting to recover. As a result, I want to be sure that everyone owns the DIA March 116 Puts (DIA OL) that I recommended yesterday. We entered these puts for $1.12, and that’s exactly the price that they’re currently trading for. Definitely maintain this downside put position for more selling pressure.

DIA

At the same time, I’d also like to add a new put play on Salesforce.com (CRM – NYSE).As you can see from the chart below, the on-demand customer relationship manager is experiencing some strong resistance right at its 50-day moving average. Factor into the equation the threat of a recession, and it’s pretty easy to see that an economic slowdown could hurt a company like CRM. In fact, worldwide business software increased at a record rate of 10.3% in 2007, and to me, this number can only come down. In fact, current forecast models are showing an 8.2% rate for 2008, and that’s being optimistic.

As you can imagine, any hint of a slow-down would hurt shares of CRM, and we could be seeing the early signs of this weakness creeping into the shares today. Therefore, let’s enter into a new put position to capitalize on any coming downside. Here’s the play:

CRM

PLAY: Buy the CRM March 55 Puts (CRM OK) at or under $4.40, good for the day. Plan to execute a “sniper” sell if these puts trade at or above $5.10. Place a protective stop limit at $2.20.

And despite a weak market, let’s also maintain our UNP March 130 Calls (UNP CF). If today’s downside move on UNP takes the stock back to its 50-day moving average, and UNP once again establishes support at this level, we should be fine holding this position into March. Therefore, I’d like to maintain this upside position for any intra-day market rallies. And of course, we’ll plan to lock in any fast profits at our pre-determined sell targets.

UNP

Should any other trading actions become available, you’ll be the first to know. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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