Midday House Keeping

Close QID Puts

By Bryan Bottarelli
Wednesday, May 13, 2009 1:19 PM EDT
Wed, 13 May 2009 17:19:00 GMT

Dear Bottarelli Research Member,

It’s quite amazing how quickly the market sentiment changes. As you know, we’ve sat in amazement and watched the market rally without consequence over the last three weeks. During this time, every commentator told you to go long, and we’ve chronicled this foolishness in past alerts. This week, however, the major market averages are all pulling back. As you can see from the Dow chart below, the Blue Chips are now indicating that they’ll need to re-test the 50-day moving average. If this level holds, then the bulls can celebrate. If not, the bears will pounce once again. Either way, we still have 581 points to go before arriving at any conclusion. That’s my technical read on the markets right now. But as you know, this market has a very funny way of drumming up artificial buying. Therefore, we’ll remain very cautious.

INDU

As part of this cautiousness, we established an upside gold play this morning by adding AEM June 55 Calls (AEM FK).If the market falls, we could see gold prices continue their upward swing. Maintain your AEM calls.

At the same time, it’s clear that the upside euphoria is temporarily over, especially on the NASDAQ. Therefore, if you haven’t already done so, close out your QID June 35 Puts (QOI RI) which hit our stop loss earlier this morning. Sell.

QID

Now, this is important: If the major market averages engage in the downside move that’s been inevitable for quite some time, we’ll finally see our two Ultra-Short positions snap back into shape. Specifically, the SRS June 25 Calls (SAK FE) that we’re holding for $4.60 and the FAZ June 8 Calls (FAY FH) that we’re holding for $1.85 could finally break into profitability. Now remember, we don’t need these plays to re-test their 50-day moving averages. Not even close. All we need is a nice 2-3 day upside move, and we’ll be back in the black. Considering how quickly the financials and real estate plays moved up, it now might be time for them to come back down. Therefore, maintain both plays going forward.

SRS

And finally, let’s keep our speculative play on the GMCR June 90 Calls (QGM FR) in our back pocket, just in case we should see some freakish market reversal. If the massive 42% short interest begins to cover their GMCR position, we could see an upward reversal that takes the shares higher. As a more aggressive play, hold your calls for this short squeeze.

As always, I’ll continue to keep you fully updated. And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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