A Bear Market Bounce Coming?

Add TBT and HES Calls

By Bryan Bottarelli
Monday, March 09, 2009 10:31 AM EDT
Mon, 9 Mar 2009 14:31:00 GMT

PLAY: Buy the HES March 55 Calls (IGG CK) at or under $3.80, good for the day. Place a protective stop limit at $2.30 and a pre-determined sniper sell at $6.00.

PLAY: Buy the TBT April 46 Calls (TBT DT) at or under $2.90, good for the day. Place a protective stop limit at $1.80 and a pre-determined sniper sell at $4.50.

Dear Bottarelli Research Member,

Good morning.Last Friday, we entered the Visa April 50 Puts (V PJ) for$3.90 per contract. As we opened today’s trading, the major market averages began by moving lower — and then quickly rebounded. As a result, your Visa puts have traded as high as $4.50 and as low as $3.60. Like I mentioned when we entered this play, I really don’t like the looks of the Visa chart, so let’s maintain these puts for more downside.

V

On the other hand, I’d like to get positioned to ride a classic bear market bounce. As I study the charts of the three major market averages, it looks about time to see a two to three day bounce across the board. As you can see from the Dow chart below, the Blue Chips have been absolutely bludgeoned over the last two weeks, which could easily ignite an oversold bounce back above 7,000.

As you know, we’re already positioned in our QID March 69 Straddle, which offers exposure to both the upside and the downside moves. The idea here is to ride the upside for all it’s worth, and then sell off the put side of the straddle. Then, as the market moves lower, we’ll ride up the QID calls. When it’s all said and done, we’ll achieve a profit by selling both sides for more than our original $10.40 entry price.

In addition to our QID straddle, I’d also like to carefully add two more upside positions to our ledger. The first is an oil play that comes in the form of Hess Corporation (HES – NYSE).In case you haven’t noticed, oil prices are slowly inching back up, sparked by rumors of OPEC production cuts and increasing tensions in North Korea, Israel, and Iran. As you can see below, shares of HES are threatening to break out above their 50-day moving average, which could ignite a rally back up to $62.50. Let’s get positioned to profit off this upside move now.

HES

PLAY: Buy the HES March 55 Calls (IGG CK) at or under $3.80, good for the day. Place a protective stop limit at $2.30 and a pre-determined sniper sell at $6.00.

At the same time, I’d also like to get repositioned in the UltraShort 20+ Year Treasury ProShares (TBT).As you would expect, a market rally would push Treasuries lower, which could help the TBT move up to the $50.00 level. Let’s play this move by adding April calls now.

TBT

PLAY: Buy the TBT April 46 Calls (TBT DT) at or under $2.90, good for the day. Place a protective stop limit at $1.80 and a pre-determined sniper sell at $4.50.

And finally, I’m getting ready to play calls on a new Ultra play that we have not played before — Ultra Gold ProShares (UGL). The UGL moves at a rate of twice the performance of gold bullion, which could offer us tremendous leverage if gold prices move up the way that I expect. Plus, since it’s relatively new, not many investors know about the UGL, which offers us a trading advantage.

UGL

As you can see above, the UGL is hammering out support at the 50-day moving average, which could offer us the ideal time to get positioned. As always, when it’s time to make a play, you’ll be the first to know. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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