Taking Caution

Dow and VIX Indicate Weakess

By Bryan Bottarelli
Monday, April 06, 2009 11:26 AM EDT
Mon, 6 Apr 2009 15:26:00 GMT

PLAY: Buy the QID April 45 Calls (QID DS) at or under $2.10, good for the day. Place a protective stop limit at $0.90 and a pre-determined sniper sell at $3.50.

Dear Bottarelli Research Member,

I’d like to continue today’s trading by quickly looking at two charts. The first chart shows the Dow’s impressive move from 6,500 up to 8,000 in just over one calendar month. That’s a powerful 23% jump off the lows. But as you can see, the Blue Chips are now pulling back right at the 8,000 level. This makes me cautious. After all, the Dow could pull back 500 points to 7,500, and still find support at the 50-day moving average. This move would still maintain the parameters of an up-trend.

INDU

Secondly, look at the chart of the CBOE Volatility Index (VIX). As you see, the VIX is hugging to the bottom of its 200-day moving average. At the same time, you have an ascending 200-day average combined with a descending 50-day moving average, which could easily ignite a powerful breakout above the 45 level. This makes me cautious as well.

VIX

As a result, I’d like to make a bearish play in anticipation of a pullback using the UltraShort QQQ ProShares (QID), which moves at a rate of twice the inverse of the NASDAQ-100. I’ve chosen the QID over similar ultra-short plays on the S&P 500 or Dow simply because the NASDAQ has been lifted with recent up-moves on Research in Motion and Apple. As you can see from the RIMM chart below, a powerful gap-up stands a good chance of getting filled on any forthcoming downside moves.

RIMM

As a result, the QID could easily pop back up to mid-point of the 50-day and the 200-day moving averages between $50 and $55. To profit off this move, let’s add QID April calls now!

QID

PLAY: Buy the QID April 45 Calls (QID DS) at or under $2.10, good for the day. Place a protective stop limit at $0.90 and a pre-determined sniper sell at $3.50.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

© 2012 CSR Group, LLC. All rights reserved. Published in USA.

Information, opinion, research, and commentary contained herein is obtained from sources believed to be reliable; their reliability, however, cannot be guaranteed. The maxim of Caveat Emptor applies — let the buyer beware. Bottarelli Research does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment.

Investments recommended in this service should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Bottarelli Research reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscriber’s initials will be used unless express written permission has been granted to the contrary.

CSR Group, LLC expressly forbids its writers from having a financial interest in any security recommended to readers. Furthermore, all employees and agents of CSR Group, LLC and its affiliate companies must wait 24 hours before following a published recommendation.

Bottarelli Research alerts contain time-sensitive information, and are published and distributed to members with urgency. Because of this, not all published materials can be adequately proofread, and an occasional spelling or grammar error may exist.


Other Options Alerts From April 2009