Set a DUG Sell

Plus, Close AMGN

By Bryan Bottarelli
Monday, December 22, 2008 3:45 PM EST
Mon, 22 Dec 2008 20:45:00 GMT

PLAY: Sell your DUG January 31 Calls (DZG AE) at or above $6.00, good for the week.

Dear Bottarelli Research Member,

If you’ve been watching the weather reports, then you know that it was -11 degrees here in Chicago last night. Factor in the wind-chill, and it feels like -30 degrees. Luckily, we had a dramatic heat wave over the last 2 hours, as temperatures moved up to +9 degrees. I nearly changed into shorts. Now that my fingers have thawed, I’m able to type up an end-of-day report.

So here goes…

Quite simply, the down-move that I have been expecting for the last week (or two) is finally taking shape today. As you can see below, the Dow has busted below its 50-day moving average, which signals a failure at this critical level. From a pure technical aspect, this is certainly a bearish sign.

INDU

In terms of positioning, we started the trading day balanced 3-to-1 for more downside action. The JCP January 20 Puts (JCP MS) that we entered this morning for $2.29 have ticked up to a high of $2.70, so let’s hold these puts for more selling pressure in (what I consider) the second worst retailer in the United States. (Sears is worst, if you’re wondering.)

Secondly, the DUG January 31 Calls (DZG AE) that I have stubbornly held onto have finally broken into the profit zone. Considering what tremendous levels of volatility we’ve seen on this position, this is quite an accomplishment. The chart signals even more upside ahead, so let’s go ahead and set a pre-programmed sell order at $6.00 right now. That way, any momentary dips can automatically trigger our sale.

DUG

PLAY: Sell your DUG January 31 Calls (DZG AE) at or above $6.00, good for the week.

Additionally, shares of AEM are finally moving our direction as well. Last week, I was perplexed that AEM can rally on a day that gold prices dropped $20.00, but today that downside move that I’ve expected is playing out. We have a double-top at the $50.00 level, so let’s hold the AEM January 40 Puts (AEM MH) for more selling pressure. I recognize that a handful of contracts traded below our stop price right at the open of trading, but this move quickly reversed course. Therefore, I’ll continue to monitor and follow this position for any members still holding.

AEM

And finally, our AMGN January 60 Calls (YAA AL) triggered our $1.40 stop loss price, so let’s close out this position. With the bearish chart formation taking shape, it’s smart to carry a light ledger into these final days leading up until Christmas. Starting in 2009, we can play more of these bullish biotech plays. And if AMGN finds support at its 50-day moving average, we could play calls once again. But for now, let this one go.

AMGN

I’ll follow up with further alerts tomorrow. But until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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