Bear Market Rally, Day #1

As Expected, Dow Up 250

By Bryan Bottarelli
Tuesday, March 10, 2009 10:22 AM EDT
Tue, 10 Mar 2009 14:22:00 GMT

Dear Bottarelli Research Member,

As I expected, we’re seeing a pop on all of the major market averages. As I write, the Dow is up more than 250 points, and the financials are leading the way. From a chart perspective, you can see today’s powerful upside tick below. There’s a chance that we could possibly rally up past 7,000 on the Dow. But if this upside move occurs, we’ll quickly revert back to experiencing selling pressure, which could lead the Dow under 6,000. We’ll use this basic market outlook as a guide to dictate our daily trading.

INDU

Looking at our current positions, our decision to temporarily take off our stop on the HES March 55 Calls (IGG CK) was right on the money. As you know, this position traded as low as $2.30 yesterday, but I instructed you to maintain these calls going into today. As I write, HES is up over $2.00, which has pushed your calls up to a high of $3.90. Quite a price swing, huh? Let’s maintain these calls for more upside, as I think that HES could break the $60.00 level soon. But just as a precaution, let’s go ahead and re-establish our protective stop limit at the $2.00 level.

HES

We’re also positioned well with our TBT April 46 Calls (TBT DT). As you know, we entered these calls on 3/9/2009 for $2.85 per contract, and today’s market rally is exactly what we wanted to see. As I write, Treasuries are moving down, which in turn is pushing TBT up. I’m targeting the $50.00 level for TBT, so let’s maintain these calls for more upside. Once the bond traders get a sense that this market rally is for real, we’ll see a sharp sell-off in Treasuries, thus pushing our TBT calls up even more.

TBT

Over on the put side, shares of Visa are up today, but to be honest, I’m still comfortable holding our Visa April 50 Puts (V PJ). We entered these puts for $3.90 and they’re currently trading for $3.20. Plus, Visa could have serious resistance at the 50-day moving average. Hold.

V

And finally, we’ve seen some wild price swings on our QID March 69 Straddle. This straddle position includes the QID March 69 Calls (DYM CQ) and the QID March 69 Puts (DYM OQ), which we entered for a total price of $10.40. Right now, the puts are trading for $6.70 and the calls are trading for $2.65, giving you a total basket price of $9.35. Now, the plan here is to maximize our put gains — perhaps selling them close to our total $10.40 entry price on the basket. As you can see from the chart below, today’s rally is pushing the QID lower, and it just might continue for another day or two.

QID

Then, after closing off the puts, we’ll hold the calls and capture any selling pressure going forward. And when it’s all said and done, we should be able to come out with gains in hand. When it’s time to make a move, you’ll be the first to know. For now, maintain both sides of the straddle.

I’ll continue to update you throughout today’s trading session. And should any new trading opportunities come up, you’ll certainly be the first to know. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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