No Guts, No Glory
Add QID Calls, PCLN Puts
PLAY: Buy the QID March 58 Calls (QID CF) at or under $4.70, good for the day. Place a protective stop limit at $2.10 and a pre-determined sniper sell at $7.50.
PLAY: Buy the PCLN March 65 Puts (PUZ OM) at or under $4.20, good for the day. Place a protective stop limit at $2.30 and a pre-determined sniper sell at $6.50.
Dear Bottarelli Research Member,
For most of today’s session, the major market averages have flirted with their lows. Within moments of opening this morning, the Dow was down 270 and hovering around the 7,553 level. As a point of reference, the Dow’s closing low on November 20th was 7,552. And the intra-day low on November 21st was 7,449. Needless to say, we’re right there. In fact, I drew the proverbial “line in the sand” on the chart just to illustrate how close we are to a breakdown. My friends, it doesn’t get closer than this.
Now, as we’ve flirted with these lows, I’ve been very tempted to jump into the QID call position that I outlined earlier this morning. The risk/reward analysis goes something like this: On one hand, there’s an outside chance that the major market averages could hit the November 2008 lows and bounce (sparked by some comments from Washington). On the other hand, there’s also the chance that a re-test of the November low sparks a cascade of selling pressure, which would set a new low and support the bearish argument for continued downside action ahead.
Given this situation, I’ll side with the prevailing trend, which is certainly lower. In fact, the more I think about it, investors are probably still holding onto the strongest tech stocks — names like GOOG, AMZN, RIMM, and AAPL. In any given portfolio, these are probably the last names to go. But if downside selling pressure firmly takes hold, people will be given no choice but to bite the bullet and sell these remaining holdings. And that could be the catalyst that helps the QID chart match the performance of the DXD and SDS. Therefore, let’s go ahead and add QID calls now.
PLAY: Buy the QID March 58 Calls (QID CF) at or under $4.70, good for the day. Place a protective stop limit at $2.10 and a pre-determined sniper sell at $7.50.
At the same time, let’s also play puts in Priceline.com (PCLN – NASDAQ). As you can see from the chart below, the stock is in the process of setting a series of lower highs, which is certainly a bearish signal. In January, PCLN hit a high of $80. Here in February, PCLN hit a lower high of $75. And now, the stock is on the verge of breaking below support at the 50-day moving average, which could be the real trigger to send shares on a tailspin lower. Therefore, let’s add PCLN puts as well.
PLAY: Buy the PCLN March 65 Puts (PUZ OM) at or under $4.20, good for the day. Place a protective stop limit at $2.30 and a pre-determined sniper sell at $6.50.
Also, let’s continue holding our NEM March 40 Puts (NEM OH) and our AGU March 40 Calls (AGU CH). Looking at our NEM puts, which we entered on February 13th for $2.32, I get the sense that everyone is now talking about the “safe-haven” benefits of gold. And when everyone owns the same viewpoint, this typically signals the near-term top.
According to Benjamin Graham, “even the intelligent investor is likely to need considerable willpower to keep from following the crowd.” Right now, I think this quote illustrates the situation on gold, because I sense that gold is hitting a near-term top. Going forward, I think we’ll see prices come off these highs. Therefore, let’s maintain our NEM puts to benefit from this pullback. Then, we’ll simply buy into the dip and ride the next up-stroke (just as everyone buying gold today will be running for cover!).
In terms of AGU, I certainly want to maintain some upside exposure, especially since the market is becoming increasingly volatile. With AGU trading above its 50-day moving average, it appears like the bulls remain in control. Therefore, maintain your AGU calls going forward.
And as always…
Lock and load!
Sincerely,
© 2012 CSR Group, LLC. All rights reserved. Published in USA.
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