Something Doesn’t Seem Right

End of Day Rally Suspicions

By Bryan Bottarelli
Friday, December 05, 2008 3:47 PM EST
Fri, 5 Dec 2008 20:47:00 GMT

Dear Bottarelli Research Member,

Another day, another 400-point trading range.

As we head into the close of trading, the Dow has made a major upside reversal, turning a -200 point loss (sparked by steep losses from the payrolls report) into a +200 point gain.

To me, I’m not buying into this end-of-week rally. After all, don’t forget what happened this past Monday. If you recall, the markets dropped 670 points, and today’s end-of-day rally is setting itself up for another type of fall when we begin trading next week.

To be honest with you, the only way to trade this volatility is to own positions on both sides of the market — and lock in quick profits as these plays move your way. In retrospect, I should have sold our DXD calls when they moved up past $8.00 earlier today. But hindsight is 20/20. If we hold these calls, I think we’ll get another chance.

After all, a quick look at today’s DXD chart shows you that the 50-day moving average is a still a level of support. Therefore, I’m going to stick with the dominant 3-month trend. Maintain your DXD December 80 Calls (DZS LB) and your QLD December 22 Puts into next week.

DXD

At the same time, continue holding your BNI December 75 Calls (BNI LO). The reason we entered these calls was to account for momentary upside moves — just like we’re seeing today. Although I wish that BNI was up a little more, this position still offers us the upside exposure we need in a super-volatile market like this.

BNI

Going into next week, we’ll continue playing this volatility in the best way possible. If that means taking even faster profits, then so be it. So on that note, have a good weekend, and we’ll get back into the game on Monday. And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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