Two New Plays

Add MOS Calls and AZO Puts

By Bryan Bottarelli
Wednesday, December 10, 2008 2:27 PM EST
Wed, 10 Dec 2008 19:27:00 GMT

PLAY: Buy the MOS January 35 Calls (MOS AG) at or under $4.50, good for the day. Place a protective stop limit at $2.10 and a pre-determined sniper sell at $7.00.

PLAY: Buy the AZO January 120 Puts (AZO MD) at or under $7.00, good for the day. Place a protective stop limit at $4.80 and a pre-determined sniper sell at $10.50.

Dear Bottarelli Research Member,

It’s been a very interesting day of trading. First and foremost, today’s Dow chart tells you that the Blue Chips have yet to break above the critical resistance level at the 50-day moving average. In fact, for most of today’s session, the Dow toyed with this level without breaking above it. This “touch and drop” pattern continues to paint a bearish picture going forward.

INDU

But at the same time, every drop is quickly bought up. In fact, yesterday’s end-of-day downside move gave the major market averages a perfect excuse to fall 200-300 points right at the open of trading. But for whatever reason (and despite more bad economic news), the major market averages opened the day with another gain. This tells me that the markets are in a period of indecision right now. On one hand, the bulls are asking if we’re fundamentally strong enough to push above the 50-day moving average. And on the other hand, the bears are trying to gauge whether or not they can spark another aggressive downside push. Because of this tug-of-war, we’re left in a trading pattern that moves 100 points up and down in a matter of hours.

Because of this situation, I think it’s time that we enter into another round of calls and puts. That way, we can properly utilize these brief periods of strength and weakness in the most appropriate manner. On the call side, I’d like to get positioned in an upside breakout candidate, which comes in the form of Mosaic (MOS – NYSE). On the put side, I’d like to get positioned in a company with a near-term double-top formation, which comes in the form of AutoZone (AZO – NYSE). Taken together, these two positions will allow us to profit off any momentary directional moves. So let’s dive right in!

Starting with Mosaic,you can see that today’s move has pushed the shares above the 50-day moving average. If this move successfully converts this level of resistance into a level of support, we could see an aggressive upside move in MOS on any forthcoming market strength. Therefore, let’s get positioned to profit off this move using January calls.

MOS

PLAY: Buy the MOS January 35 Calls (MOS AG) at or under $4.50, good for the day. Place a protective stop limit at $2.10 and a pre-determined sniper sell at $7.00.

At the same time, let’s add January puts on AZO. As you can see below, the stock is giving out right at the $130.00 level, which is exactly where it failed back in late October. This could spark a move down to the $85.00 level. Let’s get positioned to profit off this fall now!

AZO

PLAY: Buy the AZO January 120 Puts (AZO MD) at or under $7.00, good for the day. Place a protective stop limit at $4.80 and a pre-determined sniper sell at $10.50.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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