A Sloppy Bottom?

Add DNA Calls

By Bryan Bottarelli
Friday, November 14, 2008 10:48 AM EST
Fri, 14 Nov 2008 15:48:00 GMT

PLAY: Buy the DNA December 85 Calls (DWN LQ) at or under $2.85, good for the day. Place a protective stop limit at $1.60 and also set a pre-determined sniper sell at $4.10.

Dear Bottarelli Research Member,

In yesterday’s early-morning alert, I wrote the following: “in my view, today’s rally could have legs — but it won’t last long.”

As it turned out, the major market averages put in an aggressive upside move — with most of it coming in the last 45 minutes of trading. The Dow, in fact, traded in a 900-point range. It momentarily dipped under the 8,000 level, which seemed to spark a rally that pushed the Blue Chips all the way up to 8,876. Because of this move, I’ve heard some analysts declare that we’ve hit the bottom. But honestly, I don’t get too excited about “bottom” calls. After all, CNBC has had a market expert on each week for the last three months declaring a bottom. Thus far, they’ve all been wrong.

INDU

What I do know, with a high level of certainty, is that we’re in the sloppy process of establishing a near-term low. I call it a “sloppy process” because we’ve seen countless 400-point down days followed by 200-point up days — and so forth. In other words, each day is a rather large move — but there’s always the threat that the move could be completely negated the very next day (if not the very next hour!)

Today’s Dow chart, for example, has already given back 200 of yesterday’s 500 points of upside. That’s why I still think we must remain positioned to capitalize off further downside moves. So just like we’ve been doing, let’s maintain a ledger of calls and puts — and lock in quick profits on any position that moves our way.

In a move that I’ve been waiting to see, gold is putting in an aggressive upside move today as the major market averages push lower. This will help our GDX January 23 Calls (GBJ AW) that we are holding with an average entry price of $2.15. These calls traded as high as $2.80 before moving back down, so maintain this play for more upside.

GDX

At the same time, continue holding your PSA December 65 Puts (PSA XM) and your COST December 45 Puts (PRQ XI) for more downside action. Both stocks hit new 52-week lows just prior to yesterday’s late-session rally, so I’m comfortable maintaining downside positions in both stocks.

PSA

In terms of new upside plays, I’d like to make a bullish trade on biotech giant Genentech (DNA – NYSE).

DNA

As you can see from the chart, DNA is hugging to the bottom of its 200-day moving average — which has been a very strong level of support since early October. If this level can continue to hold, then DNA has a lot of room to run on the upside. Therefore, let’s get positioned to ride this upside using December calls. Here’s the play:

PLAY: Buy the DNA December 85 Calls (DWN LQ) at or under $2.85, good for the day. Place a protective stop limit at $1.60 and also set a pre-determined sniper sell at $4.10.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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