Add GENZ Calls

Plus: UPS, UNP, CAT, & COST

By Bryan Bottarelli
Tuesday, September 02, 2008 10:58 AM EDT
Tue, 2 Sep 2008 14:58:00 GMT

PLAY: Buy the GENZ September 80 Calls (GAA IP) at or under $1.70, good for the day. Place a protective stop limit at $0.90 and a pre-determined sniper sell at $3.00.

Dear Bottarelli Research Member,

Today’s market action has made it quite clear that the oil and commodities sector now contains a higher degree of downside risk than upside potential. For example, a good day could see a 3% upside move while a bad day could see a 6% downside move. The ending result is a sector that has a higher degree of downside risk — and from a trading perspective, that means we will be looking to carefully short any coming rallies.

In the meantime, let’s explore some trading opportunities that present themselves as oil prices fall. One such play is United Parcel Service (UPS – NYSE), which bounced strongly off the 50-day moving average at $62.00. A further breakout above the 200-day moving average could spark a run towards new highs above $72.00, so let’s watch this one for a possible upside play.

UPS

On the same hand, we could also see continued upside movement in shares of Union Pacific (UNP – NYSE). As you can see, shares of UNP have officially triggered a new 52-week high today, which points to continued bullishness moving forward. From a tactical standpoint, I’m looking to add UNP calls on any coming pullbacks.

UNP

But in terms of a new trading opportunity, I think it’s once again time that we explore our favorite biotech play, Genzyme (GENZ – NASDAQ).

GENZ

As you know, the biotech sector has been one of the strongest sector plays here in 2008, and GENZ is one of the top biotech companies within this grouping. With annual revenues over $3 billion and a jam-packed product pipeline that includes treatments for kidney disease, orthopaedics, transplant, cancer, and diagnostic testing, GENZ is one of the most promising biotech plays your investment dollars can buy. In fact, we’ve played call options on GENZ on numerous occasions — all with a high degree of success. And looking at the GENZ chart, it’s once again time to enter into a new round of September calls.

A near-term bottom at the $77.50 level has been established above both the 50-day and the 200-day moving averages, which is a rare finding in today’s market. This bullish indicator points to continued upside ahead, so let’s enter into calls now!

PLAY: Buy the GENZ September 80 Calls (GAA IP) at or under $1.70, good for the day. Place a protective stop limit at $0.90 and a pre-determined sniper sell at $3.00.

Also noteworthy today is a breakout formation in shares of Costco Wholesale (COST – NASDAQ).As you can see, a strong bounce above the 50-day and the 200-day moving averages could be the early indication that shares of COST are primed and ready for an extended upside move. On four prior occasions, the stock has tested (and failed) at the $74.00 level. Perhaps COST will soon make attempt number five?

COST

Let’s also consider today’s levels of heavy-machinery maker Caterpillar (CAT – NYSE). Without much fanfare, shares of CAT have quietly inched up above the 50-day moving average, and this could set the table for a breakout above the 200-day moving average as well. For all of the 6-month chart duration, the 200-day moving average (noted in red) has been a relative flat-line. But that might be ready to change. I’ll keep a close eye on shares of CAT as well.

CAT

In fact, names like UPS, UNP, COST and CAT all represent “safer” positions — which will be something I continue to explore in these periods of major market churning. Oh, and for the record, I do not feel that today’s LEH news will spark an extended upside rally in the financial sector. All it’ll take is one more major bank failure to spark another rash of selling pressure across the sector. As you can see from the XLF chart, we’re once again approaching the resistance level at $23.00. Therefore, today’s upside could be another opportunity to add downside puts.

If the timing is right, you’ll be the first to know. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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