Morning Position Update

Maintain DUG, AZO, AMGN

By Bryan Bottarelli
Monday, December 15, 2008 10:24 AM EST
Mon, 15 Dec 2008 15:24:00 GMT

Dear Bottarelli Research Member,

Good morning. As we begin the last full trading week of the 2008 calendar year, I continue to feel like we’re setting up for a downside move. After all, we’ve been closely monitoring the movements of the Dow compared to its critical 50-day moving average, and as you can see below the Blue Chips have yet to break through this level. The inability to break through this critical level (after a number of rally attempts on bad news, no less!) leads me to favor the bearish side of the coin.

INDU

Further supporting this downside thesis is the current status of the CBOE Volatility Index (VIX).As you can see below, the VIX has dipped below its 50-day moving average — which was a response to last week’s rally attempts off bad news. But now, the VIX seems to be setting up for another pop above the 50-day moving average, and that could lead to a possible “triple top” formation around the 80 level.

VIX

For these reasons, I’d like to continue holding our DUG January 31 Calls (DZG AE) and our AZO January 120 Puts (AZO MD). From a chart perspective, DUG is at such an incredibly low level, it can aggressively pop higher at anytime. Energy stocks were the top-performing sector group last week, gaining over 9%. By adding DUG calls, we’ve essentially shorted this rally. If we see a snap-back, we’ll be in a great position to lock in a strong winner. Hold.

DUG

At the same time, I continue to feel like AZO has some serious downside coming as well. The $130.00 level appears to be the top, which should ignite a down-move to at least the mid-point of the 50-day and the 200-day moving averages around $115.00. I personally think the stock should be around $60.00 per share, but that’s another story. Hold.

AZO

Now, as a hedge play, we’re also holding the AMGN January 60 Calls (YAA AL), which protect us against a sudden market rally. As I mentioned, I’m bullish on biotech going into 2009, and Amgen is one of the best biotech names you can buy. Since the stock is trading above its 50-day moving average, I think we’re in good shape with an upside bias. Maintain these calls for more gains.

AMGN

In other news, if you’re still holding your KSS January 35 Puts (KSS MG), I continue to feel like this stock chart is due for a big-time fall. If you recall, we entered these puts on 12/11/2008 for $2.95 and sold them above $4.10. The puts are now trading between $3.60 and $3.80, so if you were not able to get your sell off last week, continue working your orders at or above $4.10. Based on the looks of this chart, you’ll get your prices soon!

KSS

And finally, if you have yet to take advantage of our special “End of Year” renewal offer, your time is quickly running out. Details below!

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Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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