Add AEM Calls

Playing a Gold Move

By Bryan Bottarelli
Tuesday, August 04, 2009 11:31 AM EDT
Tue, 4 Aug 2009 15:31:00 GMT

PLAY: Buy the AEM August 60 Calls (AEM HL) at or under $3.10, good for the day. Place a protective stop limit at $1.70 and a sniper sell at $5.00.

Dear Bottarelli Research Member,

Once again, an early morning market dip has been bought up. The unrelenting bullishness continues, despite news this morning that U.S. tax receipts are on pace to drop 18% percent, representing the biggest single-year decline since the Great Depression. And remember, this fall comes at a time when the federal deficit has ballooned to a record $1.8 trillion. The numbers look bleak…

  • Individual income tax receipts are down 22% from a year ago.
  • Corporate income taxes are down 57% from a year ago (yikes).
  • Social Security tax receipts could drop for only the second time since 1940.
  • Medicare taxes are on pace to drop for only the third time ever.

Despite these figures, the unrelenting governmental spending (notably health care expansion) continues without a second thought. Make less, spend more? It truly makes no sense whatsoever. And the fact that the market continues to rally in the face of it all is the troubling part. Based on what I’m seeing, here is what will most likely occur over the next five months…

Sometime soon, we will get a sharp market sell-off. Then, this sell-off will get bought up once again, giving the bulls the confidence to spark a rally for the remainder of the 2009 calendar year. Then, just when every investor gains the courage to once again jump back into the markets, and all the “cash on the sidelines” that you hear about gets reinvested, we’ll resume a powerful decline that pushes the market aggressively lower. This sell-off will probably begin in mid-January of 2010. That’s my basic blueprint for the next 6-8 months.

From a trading perspective, we’ll do our best to navigate in the midst of this turbulent and inexplicable market environment. The tax information from above makes a strong case for owning the TBT August 50 Calls (TBT HX). A nice bounce today, shown below, indicates more upside to come. Hold.

TBT

At the same time, I’d like to remain hedged on both sides of the market using the PTR August 125 Calls (PTR HE) and the SDS August 45 Calls (SSH HS).Both assets could hand us a powerful return on any given day, all depending on which way the news flow occurs. Hold.

PTR

In terms of a new trade, I’d like to add upside exposure to one of the top gold companies in existence, Agnico Eagle Mines (AEM – NYSE). From both a daily (shown first) and a weekly perspective (shown second), it appears like AEM is ready to make an upside breakout. Let’s play this move using August calls.

AEM

AEM

PLAY: Buy the AEM August 60 Calls (AEM HL) at or under $3.10, good for the day. Place a protective stop limit at $1.70 and a sniper sell at $5.00.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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