June 2008: Worst Month in 6 Years

Oversold Indicators Can’t Even Attract Buyers

By Bryan Bottarelli
Friday, June 27, 2008 11:00 AM EDT
Fri, 27 Jun 2008 15:00:00 GMT

Dear Bottarelli Research Member,

Let’s take a moment and put things into perspective…

As of today, June of 2008 will most likely go down as the worst market month in 6 years.And although virtually every sensitivity indicator is showing an “oversold” reading, buyers are still hesitant to step back into the markets because nobody wants to catch a falling knife. As a result, we’ve faced with an unhealthy and unstable market environment — and therefore we’ll hold off on issuing any new positions as this time. Just look at this carnage:

INDU

Going into next week, I’d like to highlight some particular trading ideas that warrant our attention. First off, where will be a time in the near future that oil prices move lower. It may not be today — and it may not be next week — but it will come sometime soon. And when we see this pullback, shares of the U.S. Oil Fund (USO – AMEX) could easily re-test its 50-day moving average just above the $100.00 level. As you can see from the USO chart below, the stock has yet to surrender any of the gains it enjoyed when oil prices made their super-aggressive $11.00 single-day upside move, so you could argue that a pullback could come at anytime. If we see signs of a pullback, we could enter a quick put trade.

USO

On a similar note, a pullback in oil prices could quickly re-ignite the beaten-down oil refiners Tesoro Petroleum (TSO — NYSE) and Valero Energy (VLO – NYSE). With both stocks hitting fresh 52-week lows (and TSO trading for under $20.00!), and down-move in oil prices could spark aggressive buying in both stocks. This will be something to watch headed into next week as well. Both charts are listed for you below:

TSO

VLO

If the bearish overtones extend into next week, I’ll have no problem issuing a new series of downside put plays. And on the flipside, if we see a strong market bounce, I’ll have no problem issuing a new series of call plays. But before making any further moves, the sensible thing to do is let the markets sort themselves out today — and closely monitor how they open on Monday. And from there, we’ll be in better position to formulate our next tactical strategy. As always, I’ll be out with further updates as the conditions warrant. But for now, the game-plan is to sit tight.

SPEAKING NOTE: Switching gears, my friends at the Taipan Group have invited me to speak at their “Global Opportunities Summit,” which will be held on August 5th and 6th in San Francisco. If you would like to attend this event, then my colleagues at Taipan have extended an invitation to Bottarelli Research members like you. I’m scheduled to speak between 2:45 and 3:30 on August 5th, and my topic will be the “New Rules” of market volatility. But above all, I’d love to meet you face to face and exchange trading ideas. So if you’d like to attend this event, here is Taipan’s link. Details below:

http://www.isecureonline.com/reports/CJ5500A/E500J616

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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