Adjusting the Ledger

Oil Down Big, Commodities Crushed

By Bryan Bottarelli
Tuesday, September 02, 2008 9:56 AM EDT
Tue, 2 Sep 2008 13:56:00 GMT

Dear Bottarelli Research Member,

Now that Labor Day has come and gone, we’re entering into a market period that has historically been the worst trading month of the year. But as we open the first trading session of September 2008, the major market indices are making an aggressive upside move — fueled by a major downside correction in oil prices.

You see, everyone thought that Hurricane Gustav would cause a big spike in crude oil prices, but that simply did not happen. As a result, we’re once again seeing the correlation of oil and commodities falling across the board combined with rallies in the major market averages. Over the last three trading sessions, the Dow has gained +212, lost -171, and now today gained another +220. “Volatile” is an understatement.

As you can see from the Dow chart below, the Blue Chips are using the Gustav catalyst to bounce aggressively off the critical 50-day moving average. A rally above the 11,750 level could lead us into territory we haven’t seen since mid-June. So while the markets engage in this transitional period, it’s best if we re-set our trading ledger.

INDU

On the positive side, that means locking in profits on our ACI September 55 Puts (ACI UK). We entered these puts on August 25th for $3.93 and they’ve just crossed the tape at $7.80, good for a 99% return. Lock in this gain now!

PLAY: Sell your ACI September 55 Puts (ACI UK) at market, good for the day.

At the same time, we’re also seeing weakness in our two other call positions on FCX and BG. The un-winding of oil prices today is having a devastating effect on soft commodities as well as metals prices. Therefore, we must adhere to our stops and close out both of these positions as well.

PLAY: Close out your BG September 90 Calls (BG IR) and your FCX September 90 Calls (FCX IR).

Adding even more fuel to the fire today is confirmation that Korea Development Bank is in talks to buy troubled Wall Street firm Lehman Brothers (LEH – NYSE). This is offering an unexpected lift to the financial sector, forcing us to close out our WB September 15 Puts (WB UC) we well. Close this position now.

Going forward, we’ll carry more of a downside bias in the commodity sector, as this group now has the ability to fall much faster than rise. Should any new trades appear, you’ll be the first to know. But until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

© 2012 CSR Group, LLC. All rights reserved. Published in USA.

Information, opinion, research, and commentary contained herein is obtained from sources believed to be reliable; their reliability, however, cannot be guaranteed. The maxim of Caveat Emptor applies — let the buyer beware. Bottarelli Research does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment.

Investments recommended in this service should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Bottarelli Research reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscriber’s initials will be used unless express written permission has been granted to the contrary.

CSR Group, LLC expressly forbids its writers from having a financial interest in any security recommended to readers. Furthermore, all employees and agents of CSR Group, LLC and its affiliate companies must wait 24 hours before following a published recommendation.

Bottarelli Research alerts contain time-sensitive information, and are published and distributed to members with urgency. Because of this, not all published materials can be adequately proofread, and an occasional spelling or grammar error may exist.


Other Options Alerts From September 2008