Add FAZ Calls

Is the Financial Catalyst Over?

By Bryan Bottarelli
Friday, April 17, 2009 11:58 AM EDT
Fri, 17 Apr 2009 15:58:00 GMT

PLAY: Buy the FAZ May 9 Calls (FAY EI) at or under $2.00, good for the day. Place a protective stop limit at $0.95 and a pre-determined sniper sell at $4.00.

Dear Bottarelli Research Member,

Good morning/early afternoon. By engaging in these short and choppy trading cycles, the major market averages have continued to keep everyone guessing. As you can see from today’s Dow chart, the recent up-trend remains in play — but it’s growing weaker by the day.

INDU

As I look at this market, I’m getting the sense that the upside momentum in the financial sector is fading away. You see, the entire financial up-swing was officially triggered when Wells Fargo pre-announced earnings that blew everyone away. After that, we received decent numbers from Goldman and Citigroup, which helped to slightly extend the rally. In my view, here’s what’s happening…

Right now, the banks and financials are using changes in their accounting methods to formulate powerful earnings. As these updated and recalculated numbers are released, I can’t help but think of what John Rothchild said about statistics in his book “Survive and Prosper in Ferocious Markets.” He writes, “statistics are like prisoners under torture: with the proper tweaking you can get them to confess to anything.” Right now, I think this quote completely nails the situation in the financial sector.

Furthermore, I suspect that any bank with powerful numbers would have pre-announced their earnings. But since we’ve only seen one such pre-announcement, I would guess that the remaining numbers won’t impress Wall Street. As a result, we could see a pullback in the financial sector. Therefore, I’d like to once again add calls on the Direxion Financial Bear 3X Shares (FAZ – NYSE).As you can see below, the FAZ could rally very aggressively on any forthcoming financial pullback. And with the May calls priced very cheap, it’s worthwhile for us to get positioned for such a move right now. On that note, here’s the play…

FAZ

PLAY: Buy the FAZ May 9 Calls (FAY EI) at or under $2.00, good for the day. Place a protective stop limit at $0.95 and a pre-determined sniper sell at $4.00.

At the same time, we could be finally seeing the beginning of the upside move in our TBT June 44 Calls (TBT FR). If the TBT can break above its 50-day moving average, then we could have a powerful winner on our hands. Hold for more upside.

TBT

We could also be seeing the beginning of a pullback in the semiconductor sector, so maintain your SMH May 22 Puts (SMH QJ) as well.

SMH

And finally, we’re still waiting for HES and MOS to get some upside momentum. The fact that we own May calls in each position will certainly work to our advantage, as each stock is re-testing the support level at the 50-day moving average.

MOS

HES

In both cases, this level should hold, so maintain your HES May 60 Calls (IGG EL) and your MOS May 45 Calls (MOS EI) for a pending bounce.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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