Add AZO Calls

Plus: Maintain MS, AIG, DXD, and APOL

By Bryan Bottarelli
Thursday, July 23, 2009 11:03 AM EDT
Thu, 23 Jul 2009 15:03:00 GMT

PLAY: Buy the AZO August 160 Calls (AZO HL) at or under $3.40, good for the day. Place a protective stop limit at $1.50 and a pre-determined sniper sell at $5.50.

Dear Bottarelli Research Member,

First off, congratulations on your FFIV August 35 Calls (FLK HG) from this morning. For everyone who held into earnings, kudos on your savvy intuition. It certainly paid off today.

Now, looking at today’s 140-point market advance, I’m truly speechless. One look at the Dow’s weekly chart below, and you’ll see that the Blue Chips have basically moved from 8,000 up to 9,000 in under two weeks, all on the possibility that the market is stabilizing. This advance is unlike anything I’ve ever seen before.

INDU

So, what we’re going to do is continue positioning ourselves in the best possible way to profit no matter if the rally continues, or if the rally fails. There’s a little voice in the back of my head saying now that the Dow has run up to 9,000, all of the shorts have now covered their positions. This could be the blow-off top. Plus, this move up to 9,000 has also promoted every individual investor sitting on the sidelines to jump back in. Now that every recreational investor has anted up again, this could be when the markets clobber them. But once again, we’ll have to see this before we believe it. And thus far, we’ve seen no signs of the upside slowing down. Therefore, I’d like to replace our FFIV call play with a new upside call position.

If you subscribe to Bottarelli Research LEAPS, then you’re familiar with a company called Group 1 Automotive (GPI – NYSE).They own a series of independent auto dealerships in the United States, and on the surface you’d think there’s no way a company like this could be doing well right now. Well, the story is exactly the opposite. With GM and Chrysler shutting down dealerships across the country, this opens up a big window of opportunity for independent dealers to capture the vacated market share. As a result, the GPI October 22.5 Calls (GPI JX) that LEAPS subscribers entered on July 13th 2009 for $4.40 now trade for $7.30, good for a solid 65.91% gainer.

GPI

Now, I bring this up because it shows you that there are little pockets of strength within the much-publicized failures in the auto industry. So along those lines, I’d like to add an upside call position on another company benefiting from the auto shake-out, and that’s discount parts retailer AutoZone (AZO – NYSE).

AZO

As you can see from the chart below, AZO is settling in right at the 50-day moving average, which could serve as a strong level of support. If so, we could easily see AZO bounce back up to the $160 to $165 level very quickly. Therefore, let’s add AZO August calls to our ledger now!

PLAY: Buy the AZO August 160 Calls (AZO HL) at or under $3.40, good for the day. Place a protective stop limit at $1.50 and a pre-determined sniper sell at $5.50.

At the same time, it’s important for us to remain positioned for a downside move. Despite today’s big rally, both AIG and MS are trading slightly in the red, which shows you how weak they really are. Therefore, hold your MS August 28 Puts (MS TS) and your AIG August 15 Puts (AIG TO).

Also maintain your APOL August 70 Calls (OAQ HN). As I mentioned, APOL seems to trade in contrast to the markets. With today’s big rally, APOL is dipping. But if we see a pullback, it could shoot higher.

And finally, our decision to add to our DXD August 46 Calls (DXD HT) isn’t looking too hot right now. Like I mentioned above, the continuation of the rally has caught me off guard on this one. But let’s see of the Dow sells off at 9,000. If so, we could begin recovering on this position.

As always, I’ll keep you updated throughout the session. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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