Hold or Fail?

The Decision Remains Unclear

By Bryan Bottarelli
Thursday, March 26, 2009 10:40 AM EDT
Thu, 26 Mar 2009 14:40:00 GMT

Dear Bottarelli Research Member,

Good morning.The market rally that was originated by the Fed — and extended by Geithner — continues to press onward. In yesterday’s alert, I highlighted the major market test that’s being battled out right at the 800 level on the SPX. As you can see from the chart below, the SPX has pressed above 800, but it’s been a rather sheepish move. Not surprisingly, a nearly identical chart formation is also showing up on the Dow at the 7,500 level. Both charts are shown below:

SPX

INDU

At this point, the challenge is deciding whether or not both of these moves above the 50-day moving averages are “false breakouts.” As you can see, both the SPX and the Dow pushed above the 50-day moving average back in January — which proved to be a classic head-fake (followed by intense selling pressure). I suspect this might be a similar situation.

Therefore, from a tactical trading perspective, I’ll certainly respect the market’s upside potential, but I’ll approach it with a sense of skepticism and caution. In many respects, that’s why we own MON April 85 Calls (MON DQ) combined with TBT April 45 Puts (TBT PS), UGL April 33 Calls (UGL DG), and AET April 25 Puts (AET PE).

MON

After a strong intra-day recovery yesterday, MON is just waiting to break out above the $85.00 level. This position will allow us to participate in any further upside moves. On the flipside, if the major market averages fall, AET looks ready to fall $4.00 to $5.00 very quickly.

AET

To round out our ledger, we’re long gold and long Treasuries. If the Fed is scheduled to begin their massive buying spree, we should see an up-tick in Treasuries, which would push the TBT lower. In terms of gold, I continue to like the idea of buying into the latest dip lower.

UGL

If any further trading actions pop up, you’ll be the first to know. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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