Another Head-Fake?

Was Dip Below 200-Day MA Another False Move?

By Bryan Bottarelli
Monday, June 08, 2009 11:22 AM EDT
Mon, 8 Jun 2009 15:22:00 GMT

Dear Bottarelli Research Member,

Good morning. By this time, I’m sure you know the drill. Over the last three months, every significant market dip has been bought. At the same time, this dip-buying has come despite chart indications that show that the markets should move lower. Today is no exception. As you can see below, the Dow opened the session by dipping underneath the 200-day moving average. But soon enough, this dip was bought, and the Blue Chips trimmed their losses by moving back above this level. See the action below:

INDU

Based on this pattern, I’d like to stick to my strategy of playing the Dow up to 9,000, and then entering into a short position (most likely DXD calls). Looking at specific market sectors, the entire commodity complex opened the day lower. Gold prices dropped $14.00 down to $948, and crude oil gave up a fractional loss of $0.30. After their powerful upside run, it looks to me like a momentary breather. As I review some charts, a company like Goldcorp (GG – NYSE) once again looks like a nice candidate for upside calls. As the metals plays establish a near-term bottom, let’s get ready to make a move. When it’s time to act, I’ll let you know.

GG

Looking at our current positions, it’s now or never for Dryships (DRYS – NASDAQ). As you know, I’ve been waiting for the stock to hammer out a support point right at their 50-day moving average. If this is indeed a level of support, then it has to be confirmed now.

DRYS

As you can see, the stock is sitting right at this critical level. In my view, this should trigger an upside move back above $8.00. With any momentum, shares could get as high as $10.00. In fact, in seven trading sessions from late April to early May, DRYS popped from $6.00 up to $10.00, so a move like this is certainly possible. Therefore, let’s take advantage of these low prices by adding to our DRYS June 7.50 Calls (OOC FU). Currently trading for only $0.30, adding to our position now would lower our cost basis down to $0.73. If DRYS rallies off the 50-day moving average, adding to our position now will prove to be a savvy move.

PLAY: Buy more DRYS June 7.50 Calls (OOC FU) at market, good for the day.

At the same time, let’s trim down our upside exposure by closing out our HES June 60 Calls (IGG FL). As you know, this June position was a quick attempt to play an overreaction to unconfirmed speculation that one of HES’s drilling operations in Brazil was a disappointment. But now that HES has once again dipped below the 50-day moving average, it’s time to close this one out. Sell.

HES

When it comes to our JRCC July 22.50 Calls (JQM GX), I’d like to maintain the position a little longer. For one, this is a July expiration, which gives us more time to let a continued upside move play out. Secondly, JRCC looks like it’s coiling between the $22 ad $24 levels, which is setting up for the next upside push. Therefore, I’ll continue to follow this play for a pending upside run.

JRCC

As always, I’ll continue to update you throughout the session. And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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