The Green Shoots are Wilting

SPX at Dangerous Position

By Bryan Bottarelli
Monday, July 06, 2009 10:36 AM EDT
Mon, 6 Jul 2009 14:36:00 GMT

Dear Bottarelli Research Member,

Good morning, and welcome back from an extended 3-day weekend. I hope you had an enjoyable celebration of our independence. Given the recent economic and political events on both a domestic and global scale, I found that this year’s event hit home more so than previous 4th of July weekends. My friends, we truly live in unprecedented times. And as history continues to play out right before our eyes, our small and elite group of traders will do our very best to thrive and prosper in any market condition. I’m glad you’re part of the group!

On that note, we’ll begin today by looking at the S&P 500 chart. As you can see below, the severe downside move on Thursday, followed by today’s continuation drop, has completed the third shoulder in the head-and-shoulders formation. As it stands, the SPX is flirting with breaking below the neckline of this formation, which also falls right at the support level created by the 200-day moving average. We could see some buying at this level. But I must warn you right now. If this level breaks, then the S&P 500 doesn’t have a safety net for quite some time. This entire pattern is annotated on the chart below:

SPX

Because of this dangerous threat of downside action, continue to hold your SDS August 57 Calls (SDS HE). As you know, we entered these ultra-short calls for $4.89 on June 25th, and they’ve hit a high of $5.60 this morning. If the downside pattern plays out, our profit margins can accelerate at a rapid rate. Hold.

Also moving in our direction is the TLT August 95 Puts (ILT TQ), entered on June 30th for $3.50. If you’ve been listening to what China has been saying about T-Bills and the U.S. dollar, then you know that the largest holders of U.S. debt are actively pursuing other investments to diversify their portfolio. This could spark a sell-off in the TLT, which could push our puts much higher. Hold.

TLT

At the same time, it also makes a strong case for gold. While I admit that gold trading has been extremely choppy lately (especially at the open of each new trading day), the forces that are now in motion lead directly to gold as the safest and most logical investing position right now. Therefore, let’s also hold our ABX August 35 Calls (ABX HG).

As always, I’ll follow up with you throughout the trading session. Until then…

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 July 2009