Standing Pat (For Now)

Watching GS, PCLN, and WHR

By Bryan Bottarelli
Thursday, August 20, 2009 11:32 AM EDT
Thu, 20 Aug 2009 15:32:00 GMT

Dear Bottarelli Research Member,

On Monday, the bears fired a warning-shot to the markets by sparking a 180-point pullback on the Dow. But over the next three days (Tuesday, Wednesday, and then today), the bulls completely shrugged off this warning-shot by recovering all of the losses. In short, the strategy of “dip buying” is still in play – even though the financial and economic numbers continue to come in weak (see today’s news on U.S. jobless claims, and the weak numbers out of Sears as two examples). Not only that, but the Mortgage Bankers Association just reported that mortgage delinquencies hit a record high in Q2, as over 13% of American mortgage holders are either behind on their payments or in foreclosure. Is this a good reason for a market to rally? Apparently, the answer is “yes.” As a result, the Dow currently sits exactly where we began the week. Like a hamster on a wheel, that’s a lot of movement with very little directional progress. See for yourself below:

INDU

To my eye, this market remains severely over-bought. But as you know, that’s been the case for months. Therefore, we must continue to set aside our personal biases and play the momentum and market sentiment. Now I admit, if we do see the market averages roll over, I’d love to play puts on a company like Whirlpool (WHR – NYSE). The home appliance maker tends to combine a strong upside day with a strong downside day, thus making it a nice counter-move play. With the American consumer short on cash, jobless, and possibly using any disposable income to particulate in the “Cash for Clunkers” program, I feel that appliance purchases should suffer tremendously. I’ll monitor this trade for puts.

WHR

At the same time, if the market wants to keep steam-rolling higher, we could have an opportunity to play this continued upside move using either Goldman Sachs Group (GS – NYSE) or Priceline.com (PCLN – NASDAQ). I personally feel that PCLN is one of the most over-bought stocks on Wall Street, but if the market wants to push higher, who am I to fight it? If the appropriate time comes to play alongside a continuation rally on either company, you’ll be the first to know.

GS

PCLN

In the meantime, let’s maintain our WYNN September 55 Puts (UWY UK) and our CREE September 35 Calls (CQR IG). I admit that CREE has been slow-going lately, but today’s new 52-week high indicates more upside ahead. Our calls are sitting right at our original entry price, so let’s continue to hold.

CREE

WYNN popped this morning, probably attributed to strength in the Chinese markets overnight. But as the day has gone on, the stock has softened up a bit, which supports holding our put position. Maintain these calls for more upside.

WYNN

As always, I’ll keep you fully informed on any new developments. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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