Still Stalling at the 50-Day

S&P and Dow Still Can’t Break Through

By Bryan Bottarelli
Tuesday, December 16, 2008 10:45 AM EST
Tue, 16 Dec 2008 15:45:00 GMT

Dear Bottarelli Research Member,

Despite the fact that consumer prices registered their sharpest one-month decline since the Great Depression, the major market averages appear to be comfortable holding the line right underneath the 50-day moving averages. This chart formation can be seen on both the Dow and the S&P 500, noted graphically below:

INDU

SPX

From a technical perspective, the market’s inability to break above these levels carries a bearish overtone. That’s why we’re holding two downside positions versus one upside position. But at the same time, we also have a market that has recently shrugged off bad news and rallied higher. We also have a Fed announcement coming today at 2:15 P.M. Eastern Time — where economists believe that the Fed will aggressively cut rates as much as possible (without adopting a zero-interest policy).

Both of these events could (and I emphasize “could”) spark an upside move — and that’s why we’re holding our AMGN January 60 Calls (YAA AL) which broke into profitability this morning. But nevertheless, I still feel like we just lean more heavily on the dominant trend — and that trend is down. So maintain your DUG January 31 Calls (DZG AE) and your AZO January 120 Puts (AZO MD) going into this afternoon’s announcement.

Should any new trading opportunities come up, you’ll be the first to know. But going into this afternoon’s Fed announcement, I’d prefer to keep a light ledger — and then pounce once we get a handle on the directional reaction. After all, no matter if we break above the 50-day moving average or fail at it, the next move could prove to me a big one. As always, I’ll guide you through it every step of the way. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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