Weekly Dow Chart Triggers Caution

Dip Below 8,000 Coming?

By Bryan Bottarelli
Wednesday, June 24, 2009 12:16 PM EDT
Wed, 24 Jun 2009 16:16:00 GMT

PLAY: Buy the DXD August 48 Calls (DXD HV) at or under $4.30, good for the day. Place a protective stop limit at $2.10 and a pre-determined sniper sell at $6.50.

Dear Bottarelli Research Member,

When you study today’s daily Dow chart, you get a mixed picture. On one hand, the Blue Chips are trading below the 50-day moving average (bearish), but on the other hand, they’re now attempting to once again break above this level (bullish). As a result, you’re left questioning whether Monday’s downside move was another false breakdown.

INDU Daily

But when you look at the Dow’s weekly chart, the picture becomes much clearer. As you can see below, the weekly Dow chart clearly shows a failure just underneath the 50-day moving average at 9,000. This leads me to believe that we’re headed for a test at 8,000, as noted graphically below.

INDU Weekly

Therefore, I think we have another opportunity to fade this morning’s durable goods rally. Now I admit, due to the Fed meeting, this play might be tricky. But if timed correctly, it could pay off very nicely. The play, as you probably guessed, is once again jumping into Ultra Short Dow 30 ProShares (DXD – NYSE). Specifically, let’s fade the rally using DXD August calls (which give us a little more time to watch the move fully play itself out). But of course, we’ll make sure to lock in any quick profits if the major market averages give up this morning’s gains and trade lower. Here’s the play…

PLAY: Buy the DXD August 48 Calls (DXD HV) at or under $4.30, good for the day. Place a protective stop limit at $2.10 and a pre-determined sniper sell at $6.50.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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