Financials Lead, Day #2

Close Out PBR

By Bryan Bottarelli
Thursday, July 17, 2008 2:54 PM EDT
Thu, 17 Jul 2008 18:54:00 GMT

Dear Bottarelli Research Member,

The major market averages are engaged in day #2 of a rally sparked by housing and financials. As you can see from the Philly Housing Index (HGX) and the Financial SPDR (XLF) charts below, each index is putting in another strong bounce.

HGX

XLF

At the same time, we’re also seeing a major commodity-based sell off, as coal, steel, agricultural, and oil stocks are all getting hit hard once again.

As you know, we were positioned to play this down move using our OIH puts from this morning, but the choppy nature of the market triggered out stop prices in the opening moments of trading. This prompted a transition over into the PBR August 60 Calls (PMJ HL), which have also triggered our stop loss this afternoon. So in less than 24 hours, we’ve attempted to play both the downside and the upside of the oil market, both without success. That’s some major volatility.

As it stands, we’re left holding only the PCU August 30 Calls (PCU HF). Similar to the rest of our positions, this one has been both in the plus and in the minus column today, so let’s maintain these August calls for a forthcoming bounce.

PCU

But more importantly, we’ll do our best to stay on top of the current market transition, which has money flowing out of oil, energy, & commodities and back into financials and housing. Look at Goldman Sachs (GS — NYSE), for example. The stock is probably the very best financial you can buy, and the company has blasted higher over the last two days. And not surprisingly, the major market averages have traded higher right alongside them.

GS

While we remain in this state of money flow transition, we’ll avoid the temptation to enter into any new plays. After all, based on today’s experience in the oil patch sector, it behooves us to make short and careful plays without getting too exposed to one side of the market or the other. Therefore, let’s hold our PCU calls without adding any further trades. If the major market averages can hold onto their gains into the close, that would be an impressive statement. We’ll see how the last hour plays out. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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