Playing More Dip Buying

Potential Plays on NTES, WYNN, and KSS

By Bryan Bottarelli
Monday, August 10, 2009 11:35 AM EDT
Mon, 10 Aug 2009 15:35:00 GMT

Dear Bottarelli Research Member,

Good morning. Despite a dip at the open, the major market averages have once again stabilized in the first 60 minutes of trading. This buying comes on the news that the deficit grew by $181 billion just in July.

With every passing day, the threat of a looming breakdown increases, but the bulls keep shrugging off this possibility and pushing the averages higher. The pattern that we’ve seen lately – small red candlestick formations (which I’ve called “false highs”) followed by powerful upside moves – continues to present itself today. Take a look:

INDU

As it stands, we’re currently holding the CTRP August 50 Puts (QCT TJ), which we entered on August 5th for $2.80. Let’s continue to hold these puts, as CTRP still looks primed to re-test the 50-day moving average around $45.00.

CTRP

But in an effort to balance our ledger (and play the unrelenting upside bias), I’d also like to add a new call to our ledger. But before doing so, I need to wait for confirmation that each play will indeed push higher. So, in anticipation of this confirmation move, I’ll introduce a new wrinkle in our trading style. What I’d like to do is introduce you to some potential play candidates before they give the official confirmation signal. That way, you can have these possibilities in your hands beforehand. Then, if (or when) it comes time for a trade, I can simply issue a super-quick buy alert. Since the argument for each play has already been made, you can jump into the play without any lag time. In my opinion, this could dramatically affect the timing and pricing on our plays – thus improving our trading results. So on that note, here are two possible candidates for today.

The first is our old friend NetEase.com (NTES – NASDAQ). If you recall, we made 30.43% on July 7th playing NTES calls, which was based on the stock hitting a series of new 52-week highs. Ever since making that play, I’ve watched NTES continue blasting higher. As you can see, the stock shot above $45.00 in early August, and then pulled back. After a few days of stabilization, it now looks ready to make another upside push. If NTES can break above today’s high of the day at $45.43, we’ll be in business. Until then, let’s sit tight.

NTES

At the same time, we also have a potential trade on Wynn Resorts (WYNN – NASDAQ). As you can see below, WYNN has had some explosive upside movement. In early August, it peaked at $60.00, which is when I considered playing a pullback using puts. But as it turned out, this pullback only took the shares down to $55.00, where they bounced right back up to their previous highs. Right now, WYNN looks poised to break above these old highs, which indicates more upside momentum ahead. If we get the proper buy signal, you’ll be the first to know.

WYNN

We also have a potential pullback candidate in Kohl’s (KSS – NYSE). As you can see, the stock has moved aggressively higher lately, but weak retail sentiment today is pushing the stock back down. If this downward pressure gives off the indication that it’s more than a one-day occurrence, we’ll jump into puts.

KSS

Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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