Yet Another Bloodbath

Only This Time, We’ve Hit 52-Week Lows

By Bryan Bottarelli
Thursday, June 26, 2008 11:29 AM EDT
Thu, 26 Jun 2008 15:29:00 GMT

Dear Bottarelli Research Member,

If you bought shares of General Motors (GM – NYSE) 50 years ago, and you held over the entire time frame, you’ve officially lost money today. That’s quite an incredible statistic.

But an even more troubling sign is the fact that the Dow Industrials have officially hit a new 52-week low. In fact, the Dow is now at a 2-year low, and it’s bringing everything down with it. In markets like this, nothing is immune to the selling pressure — so we will remain as defensive as possible.

One possible way to withstand this weakness is using the UltraShort S&P 500 Tracker (SDS – AMEX). This is one of those new specialty ETF’s that moves double the inverse of the S&P 500. In other words, if the S&P 500 is down 1.5% (like it is today), then the SDS moves up 3%. As you can see below, the SDS has been behaving properly in this weak market environment, offering a possible way to hedge against any further weakness.

SDS

Since the SDS trades options, I’m considering adding the SDS July 65 Calls (SDS GM), which are currently trading between $2.85 and $3.00 per contract. But before making this play, I want to be sure that we don’t see a new series of programmed-buying taking place here at these 2008 lows. You see, sometimes the major brokerage houses place programmed buy orders at certain technical levels — and often times this programmed buying is the first step in sparking a major turnaround point. Absent of this buying interest, we could fall further, so if & when the timing is right, we’ll add a defensive downside play like SDS calls.

In the meantime, shares of COP just cannot gain any traction. The shares briefly turned positive 30 minutes ago, but the bearish overtones in the market are just too great to withstand. As you know, we added more COP July 100 Calls (COP GT) at or under $1.10 on June 20th, and then we lowered our protective stop limit to $0.45. As I write, these calls are trading for $0.56, so be sure to adhere to your stops if prices keep dropping. And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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