Do We Short It?

Possible SDS Call Play

By Bryan Bottarelli
Monday, September 08, 2008 11:50 AM EDT
Mon, 8 Sep 2008 15:50:00 GMT

Dear Bottarelli Research Member,

Good morning. When the Fed bailed out Bear Sterns, Warren Buffett described it as an “8 out of 10 on the financial Richter scale.”

Listening to Mr. Buffett speak on the radio this morning, he described the weekend bailout of Freddie and Fannie a “9.9 out of 10 on the financial Richter scale.”

As you very well know by now, the financial markets are surging this morning, as investors applaud (what some are considering) the end of the crisis. As you can see from the Dow chart, the Blue Chips have made a strong opening-session move, but I’ve been slow to place any trades in reaction to this move for a number of reasons.

INDU

First off, we’re in un-charted market territory, as nothing over the last few decades has been as significant as this weekend’s bailout.

Second, the Fed takeover of Bear Stearns was initially met with market optimism — but that upside move then gave way to a new 52-week low. So if anything, I’m inclined to short today’s rally.

And third (following up on the point above), today’s upside move has yet to take the Blue Chips over the critical 50-day moving average — which tells me tat this level could act as strong resistance.

Toss into the equation new worries out of Lehman Brothers (LEH – NYSE) and today’s upside move could quickly evaporate.

But like I mentioned, before making any moves, I’d like to see how the market react going into lunchtime. And after some due diligence, we could be ready for a new trade or two. Until then, maintain your TSO October 20 Calls (TSO JD), which have traded as high as $1.70 in today’s action. With these calls now back at our entry price, let’s hold for another upside jump. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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