A Double Whammy

Resistance at 200 Day, Break Below 50-Day

By Bryan Bottarelli
Tuesday, June 23, 2009 10:38 AM EDT
Tue, 23 Jun 2009 14:38:00 GMT

PLAY: Buy the TBT July 52 Calls (TVT GZ) at or under $2.40, good for the day. Place a protective stop limit at $1.20 and a pre-determined sniper sell at $4.60.

Dear Bottarelli Research Member,

At the close of yesterday’s trading, the Dow pushed underneath the 50-day moving average. So in one day, the Blue Chips confirmed resistance at the 200-day moving average, and also closed below the support level at the 50-day moving average. In my book, this is a double-whammy bearish indicator. After all, as you can see below, once below the 8,250 level, the Dow does not have a strong support level until 7,500. In other words, we’re looking at the potential of 750 points down very quickly.

INDU

But on the flipside, we’ve all seen this market do strange things, especially with a Fed meeting coming up this week. Therefore, we’re going to trade this market very carefully. After closing out our ledger yesterday morning, we followed up in the afternoon by entering the GS July 135 Puts (GS SG) for $4.65. As you can see below, the stock is trying to establish support at the 50-day moving average, but if yesterday’s move on the Dow is any indication, this level will fail to hold. As a result, let’s maintain our GS puts for more market weakness.

GS

In terms of a new trade, I think it’s smart to buy into the latest dip on the Ultra Short 20+ Year Treasury ProShares (TBT – NYSE).With the entire world now becoming cautious on Treasuries, this week’s FOMC meeting could trigger some moves of desperation. If that means increasing yields to attract foreign buyers, then that’s what’ll happen, possibly pushing the TBT up. As you can see below, the TBT is coming up on a support level at the 50-day moving average, combined with a double bottom. Let’s use this opportunity to buy into the dip.

TBT

PLAY: Buy the TBT July 52 Calls (TVT GZ) at or under $2.40, good for the day. Place a protective stop limit at $1.20 and a pre-determined sniper sell at $4.60.

Let’s also keep an eye on gold prices — for as soon as the metal sets a near-term bottom, we’ll pounce on upside calls.

GOLD

As always, I’ll keep you fully informed. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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