AZO Update, New PCU Play

Puts Stopped (But I Still Like It)

“Christmas Is A Time When Kids Tell Santa What They Want, And Adults Pay For It. Deficits Are When Adults Tell The Government What They Want, And Their Kids Pay For It”

- Former Colorado Gov. Dick Lamn, quoted in The Denver Post

PLAY: Buy the PCU March 15 Calls (PCU CC) at or under $3.00, good for the day. Place a protective stop limit at $1.10 and a pre-determined sniper sell at $5.50.

Dear Bottarelli Research Member,

Over the last few weeks, I’ve given you some amazing statistics on the tremendous volatility levels we’ve seen this year. Here’s another one…

Between 1950 and 2000, the S&P 500 gained (or lost) at least 5% during a single trading session a total of 27 times. In other words, over 50 years, a 5% move occurred, on average, once every two years. But get this: So far in 2008, the S&P 500 has gained (or lost) 5% during a single trading session a total of 42 times.

Just this year, we’ve nearly doubled the 50-year total for daily 5% moves. To me, this is an amazing statistic — and it just proves my thesis that the “Age of Volatility” is upon us. And from the looks of things, the volatility is here for good. After all, if you look at exactly how the government is raising their bailout money, you’ll be more than a little concerned. Here’s a brief breakdown of the entire process…

Technically speaking, the bailout money comes from the Federal Treasury — which was running a massive $400 billion budget deficit before our current financial crisis even began. Therefore, to pay the continuous bailout commitments, the government has had to borrow hundreds of billions more by selling bonds on the global bond market.

Every week, the Treasury Department auctions bonds ranging from 30-day to 30-year expiration dates. The money collected from these bonds is deposited into the Federal Reserve Bank of New York, which then turns around and lends it to failing companies like AIG and Citigroup. This entire process is what people describe as “printing money.” After all, the money collected from issuing bonds is essentially created out of nothing.

As it stands right now, we’re borrowing $550 billion per quarter — which has pushed our national debt past $10.6 trillion. Heck, taxpayers like you and me pay $412 billion just in interest to cover this enormous debt. This is truly unfathomable.

Even more concerning is the fact that China and Japan respectively own $585 billion and $573 billion worth of Treasury Bonds. And since China and Japan are both major U.S. exporters, they’re essentially buying Treasury Bonds with our money! For example, we pay them our hard-earned dollars to send us knick-knacks like snow-globes and yard gnomes — and they use this money to buy U.S. Treasuries. Not good, if you ask me.

When you add it all up, the case gold is stronger than ever before. Therefore, I’d like to establish a new upside call position on a gold company like Agnico-Eagle Mines (AEM – NYSE) or Barrick Gold (ABX – NYSE).

But before making such a call play, I’d like to wait for each stock to pull back. As you can see from the charts, both stocks have made quite an upside run — so let’s let them pull back and then jump in. In the meantime, I think we have an instant opportunity to play calls on Southern Copper (PCU – NYSE).

Unlike AEM and ABX, PCU is nowhere close to tapping the top of its 200-day moving average. In fact, PCU needs to rally more than 50% just to equal the recent performance of the top gold plays. And since PCU produces and sells copper, molybdenum, zinc, silver, lead, and gold, they’re one of the best all-around metals plays you can buy. The stock is so cheap, we can easily play March calls and participate in an extended upside rally. On the eve of this afternoon’s Fed announcement, that’s exactly what I’d like to do. Let’s get positioned in PCU calls now, and profit off an extended upside move. Here’s the play:

PLAY: Buy the PCU March 15 Calls (PCU CC) at or under $3.00, good for the day. Place a protective stop limit at $1.10 and a pre-determined sniper sell at $5.50.

At the same time, we’ve unfortunately triggered our pre-determined stop loss on our AZO January 120 Puts (AZO MD). The double-top formation that I attempted to play at the $130 level has been ruptured, as AZO has moved up to $133 in today’s trading. Now, in my view, I still think the stock has a lot of room to move lower. Therefore, if you choose to maintain this position, I’ll continue to follow it for you. But in terms of our track record, this position is now officially closed.

And finally, don’t forget to take advantage of our special “Year End” renewal offer — which expires THIS FRIDAY! If you have yet to take advantage of this offer, make sure that you do it now. Details below:

SPECIAL “END OF YEAR” RENEWAL EXPIRES THIS FRIDAY!

Your special “End of Year” renewal offer is about to expire. As a quick refresher, this renewal offer extends your membership for 9 months at the lowest price in the history of Bottarelli Research. Please don’t miss out. Give yourself an early Christmas present and lock in this discounted membership offer now!

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And as always…

Lock and load!

Sincerely,