Wrapping Up the Week

Sell DXD, Maintain All Other Positions

By Bryan Bottarelli
Friday, July 24, 2009 2:56 PM EDT
Fri, 24 Jul 2009 18:56:00 GMT

Dear Bottarelli Research Member,

On a day where technology bellwethers Microsoft (MSFT – NASDAQ) and Amazon (AMZN – NASDAQ) simultaneously reported poor earnings, pushing both stocks down over 8%, the major market averages are still flat-lining on the day. When you see a broad-based market reaction like this, it becomes perfectly clear that we’re now faced with a market that aggressively rallies on days that companies beat significantly reduced earning expectations, and runs flat on days where companies cannot beat reduced expectations. In other words, no matter what happens, the market does not move down.

INDU

This is not an isolated incident. We’ve seen similar action when General Electric (GE – NYSE) and even Google (GOOG – NASDAQ) reported poor numbers. For whatever reason, the market simply refuses to go down. If I could offer you a logical explanation, I would. But honestly, there is no way to rationalize the recent behavior. Therefore, we have no choice but to close off our DXD August 46 Calls (DXD HT). If the market cannot move down on a day that MSFT and AMZN are weak, then we’re fighting a losing battle. Therefore, let’s close this position off now. Sell.

Going into next week, we’ll hop on board the idiot mobile, which is my way of saying that we’ll play the unrelenting upside euphoria as long as it lasts. I have a handful of strong call play candidates, and we’ll pursue them early next week.

But in the meantime, let’s maintain our current ledger, which includes the AZO August 160 Calls (AZO HL), APOL August 70 Calls (OAQ HN), MS August 28 Puts (MS TS), and AIG August 15 Puts (AIG TO). Despite the market upside, both MS and AIG continue to run flat, which tells me that any selling pressure will push them lower for good.

AIG

MS

On the upside, I continue to feel that both AZO and APOL are due for another pop. Maintain both calls going into next week.

AZO

On that note, have a good weekend. And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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