Fade it Again

Add SDS Calls

By Bryan Bottarelli
Thursday, June 25, 2009 10:43 AM EDT
Thu, 25 Jun 2009 14:43:00 GMT

PLAY: Buy the SDS August 57 Calls (SDS HE) at or under $4.90, good for the day. Place a protective stop limit at $2.20 and a pre-determined sniper sell at $7.00.

Dear Bottarelli Research Member,

The pre-market futures moved lower when jobless claims for the week ended June 20th rose 15,000 to 627,000 – the highest level since May 16th. It’s pretty interesting how you don’t hear anyone on TV telling you that today’s number supports the “green shoots” recovery concept, right?

Nevertheless, it didn’t take long for the major market averages to turn the opening-session loss into another gain. As I write, both the Dow and the S&P 500 are trading higher, but the charts continue to indicate that we have weakness ahead. As you can see below, the Blue Chips are mounting an early session rally, but they’re still trading below critical support at the 50-day and 200-day moving averages. If this rally gives out, then there is no safety net for over 700 points.

INDU

But as I noted before, the bulls have been extremely resilient. Despite numerous technical breakdown indications, they’ve continued to buy into any dip and prop this market up. Therefore, we’ve traded this market with caution. But the longer the Dow treads water below the 50-day and the 200-day averages, the stronger the bears become. Remember, it was only this past Monday that the Dow dropped 200 points. Since then, we’ve moved sideways. I get the feeling that the bears are just waiting for the next moment to make another downside push. Therefore, I’d like to adopt the same tactical trading strategy from yesterday, which worked out great. And that is, we’ll once again “fade” the rally by adding Ultra-Short calls in the midst of the upside move.

Yesterday, we played August calls on the Ultra Short Dow 30 ProShares (DXD – NYSE). But for today, I’d like to play August calls on the Ultra Short S&P500 ProShares (SDS – NYSE). As you can see from the annotated SDS chart below, a breakout above the 50-day moving average (which would coincide with breakdown below the support levels on the S&P 500 chart) indicates that the SDS could potentially have $20.00 of upside coming in the future.

SDS

As we all know, this market has been extremely choppy lately, so let’s get positioned to play this move using August calls. This would give us extra time to watch the move unfold. On that note, here’s the play…

PLAY: Buy the SDS August 57 Calls (SDS HE) at or under $4.90, good for the day. Place a protective stop limit at $2.20 and a pre-determined sniper sell at $7.00.

At the same time, continue holding your TBT July 52 Calls (TVT GZ) and your GS July 135 Puts (GS SG).And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

© 2012 CSR Group, LLC. All rights reserved. Published in USA.

Information, opinion, research, and commentary contained herein is obtained from sources believed to be reliable; their reliability, however, cannot be guaranteed. The maxim of Caveat Emptor applies — let the buyer beware. Bottarelli Research does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment.

Investments recommended in this service should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Bottarelli Research reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscriber’s initials will be used unless express written permission has been granted to the contrary.

CSR Group, LLC expressly forbids its writers from having a financial interest in any security recommended to readers. Furthermore, all employees and agents of CSR Group, LLC and its affiliate companies must wait 24 hours before following a published recommendation.

Bottarelli Research alerts contain time-sensitive information, and are published and distributed to members with urgency. Because of this, not all published materials can be adequately proofread, and an occasional spelling or grammar error may exist.


Other Options Alerts From June 2009