Add ABX Calls

A Gold Bounce Coming?

By Bryan Bottarelli
Friday, October 24, 2008 10:40 AM EDT
Fri, 24 Oct 2008 14:40:00 GMT

PLAY: Buy the ABX January 17.5 Calls (ABX AW) at or under $4.90, good for the day. Place a protective stop limit at $2.20 and a pre-determined sniper sell at $9.00.

Dear Bottarelli Research Member,

First of all, I think we’re seeing some major “manipulation” action behind the scenes today. The Dow should have opened -550 and quickly made its way down to -700 (perhaps even more). But over the first 60 minutes of trading, the markets have leveled off around the -400 mark at 8,300. Here is a graphic look at today’s trading:

INDU

This graph also highlights just how brutal the recent selling pressure has been — and it shows you why I think we’ll re-test the lows set under the 8,000 level. We still have 500 to 700 points of downside action left in the market. That’s why I entered the DIA puts this morning — seemingly as the markets were being artificially held up “behind the scenes.” Once this pot of money runs out, we could see the major market averages give out and begin their true tumble. So maintain your puts to protect against more selling pressure.

At the same time, I remain shocked, perplexed, and mystified at the recent action of gold — and especially gold stocks like Barrick Gold (ABX – NYSE). In recent sell-offs, we’ve seen a rush of investment dollars into both gold and ABX. In fact, we’ve successfully used GLD and ABX as “safe haven” plays during past 2008 sell-offs. But for whatever reason, we’re not seeing this action play out right now. Just look at this ABX chart and you’ll see what I mean:

ABX

I don’t know about you, but it looks like ABX is due for a major bounce. The fact that ABX is up today could be the mark of a near-term bottom. Therefore, I’d like to use this formation to establish a longer-term call position. Specifically, I like the ABX January 17.5 calls, which currently trade between $4.40 and $4.70 per contract. They’re $2.00 in the money, which means you’re paying $2.50 to carry this position into January. I think it’ll pay off the moment investors rush back into gold — which should happen sometime between now and the end of the year. From the looks of this situation, this position could be a 100% gainer, perhaps even more. Therefore, let’s add ABX calls now.

PLAY: Buy the ABX January 17.5 Calls (ABX AW) at or under $4.90, good for the day. Place a protective stop limit at $2.20 and a pre-determined sniper sell at $9.00.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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