Add RTH Puts
More Retail Pain
PLAY: Buy the RTH February 70 Puts (RTH NN) at or under $4.40, good for the day. Place a protective stop limit at $2.10 and a pre-determined sniper sell at $6.00.
Dear Bottarelli Research Member,
As I mentioned this morning, the Dow has now lost ground over the last seven (7) trading sessions, which has taken the Blue Chips right down to the 8,000 level. A breakdown underneath this level could seriously threaten the late-November low of 7,500. If this low is penetrated, you better believe that the bears will be selling this market with both hands.
But on the other hand, let’s keep in mind what lies ahead for the markets. On Monday, the major market averages are closed for Martin Luther King day. Then on Tuesday, we have the Presidential Inauguration. We all know that the “Presidential Catalyst” was a major contributor to the markets’ upside run in late 2008 and into early 2009. Therefore, with the markets getting so low in recent action, we could be setting up for another upside push heading into next week.
For this reason, we will continue to hold our February upside calls plays, which currently include the ABX February 32.5 Calls (ABX BZ), MON February 90 Calls (MON BU), and LVS February 7.5 Calls (LJJ BU).
But at the same time, I’d also like to re-load the put side of the ledger. We’ll accomplish this by taking a downside bias on retailers like Amazon.com, Best Buy, Costo, Home Depot, Lowes, Target, Wal-Mart, and Walgreen’s — all at the same time.
It’s quite clear to me that the retail sector will experience extreme pain for all of 2009. Therefore, let’s enter a new put play on the vehicle that plays all of these stocks at once, the Retail HOLDRs (RTH).
From a chart perspective, this basket of retail companies is attempting to hammer out a support point underneath the 50-day moving average at $70.00. I personally do not think it’ll succeed. Therefore, a re-test of the recent low could spark a $10.00 downside move, and I’d like to get positioned to ride any forthcoming downside pressure by adding February puts right now. Here’s the play…
PLAY: Buy the RTH February 70 Puts (RTH NN) at or under $4.40, good for the day. Place a protective stop limit at $2.10 and a pre-determined sniper sell at $6.00.
And as always…
Lock and load!
Sincerely,
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