Pre-Market Alert: Chaos in Congress, WaMu Fails

Sharp Losses Expected

By Bryan Bottarelli
Friday, September 26, 2008 9:27 AM EDT
Fri, 26 Sep 2008 13:27:00 GMT

Dear Bottarelli Research Member,

The hits just keep on coming.At the close of business yesterday, reports were swirling that the bailout plan was all but wrapped up: Signed, sealed, and delivered. But as it turned out, this was certainly NOT the case.

After the high-stakes bailout talks ended in utter chaos, Barney Frank (D-Mass.) said “at this point, we have absolutely no participation or cooperation from House Republicans."

And if that weren’t enough, around the same time this meeting was letting out, Washington Mutual officially became the largest bank failure in the United States. Luckily, J.P. Morgan Chase quickly bought up their assets, deposits and some liabilities for $1.9 billion. But the damage was clearly done. The markets remain in disarray, which is reflected by the sharp losses in the pre-market futures.

This tremendous level of volatility is exactly why I recommended the “political straddle” position yesterday. Maintain both your DIA October 110 calls and puts throughout these large price swings. As I mentioned, a move of magnitude (which we can certainly achieve today) will push this play into profitability.

At the same time, gold and soft commodities should be “in play” today as well, as investors flow money into “safe haven” investment positions. Maintain your DBA November 33 Calls (DBA KG) and your GLD October 87 Calls (GLD JI) as well.

I would also like to maintain our KMB October 65 Calls (KMB JM), as a consumer staples company like KMB represents a safe haven investment as well. But if the selling pressure gets too extreme, we may need to close off this position. I’ll keep you fully updated throughout the day. But until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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