Mid-Day Update

Close ISRG, Hold NTES & DUG

By Bryan Bottarelli
Monday, July 13, 2009 11:59 AM EDT
Mon, 13 Jul 2009 15:59:00 GMT

Dear Bottarelli Research Member,

First off, congratulations on the quick profit from your AAPL July 140 Calls (APV GH). As you know, the purpose of this play was to get positioned for another sudden and unexpected market rally, which is exactly what we’re seeing today. Despite the Dow and the SPX showing signs of a classic Head and Shoulders formation (which is bearish), I’ve indicated in past alerts that this could be where we see more of the mysterious buying that’s surfaced right around critical breakdown points. Once again, we’re seeing this trend materialize today. As you can see below, the SPX is putting in a strong upside move right off the 200-day moving average, which has temporarily stymied the further development of the H&S formation. But remember, today’s upside push is coming on relatively low volume, so the jury is still out.

SPX

In fact, most of today’s upside move was sparked by an upgrade on Goldman Sachs (GS – NYSE) leading into their earnings announcement tomorrow. If their numbers disappoint Wall Street, we could have an opportunity to “fade” today’s rally by adding SPY puts or Ultra-Short SDS calls. We’ll get a better sense of this play going into tomorrow.

In the meantime, today’s upside rally has stopped us out of our ISRG July 140 Puts (AXQ SX). While this position was profitable last week, today’s move has forced us to limit our downside exposure. If you haven’t already down so, close this play now.

This leaves holding NTES August 35 Calls (NGH HG) and DUG July 21 Calls (DZG GU). I’d like to maintain both positions. Despite toady’s upside run, oil prices continue to fall on the threat of increased regulatory scrutiny when it comes to energy futures. Also keep in mind that last year’s big oil price decline began on July 15th, 2008, so we’re now entering into a period of seasonal weakness.

Furthermore, Nabors Industries (North America’s largest land-drilling oil contractor) just announced that full-year earnings might fall short of analysts’ expectations. They said that oil and gas exploration/production has slowed, which has lead to delayed or canceled drilling contracts. This is why Nabors reduced their 2009 earnings estimate from $1.5 billion down to $1.3 billion.

Add it all up, and I think that oil prices will continue to fall. Therefore, maintain your DUG calls for more upside.

DUG

As always, I’ll keep you fully informed on any further trading activities. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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