In Advance of the Fed

Setting 3-Day Game Plan

By Bryan Bottarelli
Monday, August 04, 2008 11:16 AM EDT
Mon, 4 Aug 2008 15:16:00 GMT

Dear Bottarelli Research Member,

Good morning.As I mentioned a few weeks back, I will be traveling in the beginning part of this week to speak at Taipan’s annual investment summit. As a result, there will not be any new trading alerts until Thursday. In a way, the timing of this slight trading pause is nice – simply because the Fed will make their next policy statement tomorrow afternoon.

Although the entire investment world expects them to keep rates steady, you never know how the major market averages will react to the “language” contained in their statement. Therefore, sitting on the sidelines for a day or two is a good strategic move.

Speaking of the Fed, I must share with you one of the most important quotes of the last calendar year. In preparing my research for my conference speech, I learned that Fed Chief Ben Bernanke was quoted on June 5th 2007 as saying, "Troubles in the subprime sector seem unlikely to seriously spill over to the broader economy or the financial system.”

Wow, talk about getting is completely and utterly wrong!

This quote will be how I kick off my speech tomorrow, and it’ll lead into how we’ve been using specific trading vehicles to navigate the recent market volatility.

I’m not sure if you’re aware of this, but we’ve gone 5 for 5 trading the UltraShort S&P 500 Proshares (SDS), 3 for 3 trading the UltraShort Oil&Gas Proshares (DUG), and 3 for trading the CBOE Volatility Index (VIX) since July of 2008. That’s 10 for 10 trading these “bear market ETFs” and my speech will explore how we’ve used the recent market conditions to achieve these returns.

Looking at our current positions, I continue to feel that the BEN August 100 Puts (BEN TT), LAMR August 35 Puts (LJQ TG) and GENZ August 75 Calls (GAA HO) offer us a nice collection of upside and downside plays.

BEN

LAMR

GENZ

LAMR and BEN both appear ready to dip below their 50-day moving averages, while GENZ is once again testing its support level at $74.00. Over the next two days, I’d like to maintain all three positions.

But at the same time, I’d also like to establish a pre-set selling target that’ll trigger if prices turn profitable.

  • BEN August 100 Puts (BEN TT): Sell at or above $6.20, good until Thursday. Set a stop at $2.90.
  • LAMR August 35 Puts (LJQ TG ): Sell at or above $2.20, good until Thursday. Maintain $0.80 stop.
  • GENZ August 75 Calls (GAA HO): Sell at or above $4.00, good until Thursday. Maintain $1.50 stop.

If any of these prices trigger over the next two days, go ahead and lock in your profits. And if not, then I’ll follow back up when I return from my speaking engagement Thursday morning.

Until we talk again later this week…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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