Do I See Red?

Can Market Weakness Last?

By Bryan Bottarelli
Thursday, August 27, 2009 10:13 AM EDT
Thu, 27 Aug 2009 14:13:00 GMT

Dear Bottarelli Research Member,

Good morning. It’s sure amazing what a little downside pressure can do to the markets. Although the Dow and the S&P 500 are only down 1%, we’re seeing some very nice recovery action on SHLD, WYNN, and SDS. As I write, your SHLD September 65 Puts (KTQ UM) have broken into the profit zone, and your SDS September 45 Calls (SSH IS) and WYNN September 55 Puts (UWY UK) are each getting closer to our original entry prices. Let’s maintain all three downside plays, which position us nicely for more selling pressure. Hold.

WYNN

In terms of new trades, I want to watch closely to see if this market dip gets bought up. If so, then we could enter into a new call play. But first, I need to see evidence of the dip-buyers before jumping into a new play. On the flip-side, if the market selling continues, I’d like to add downside exposure to the financial sector. After all, we all know that the financials sparked this rally. If they lead the way up, there’s a good chance that they’ll lead the way down. That’s why I’m paying very close attention to Prudential Financial (PRU – NYSE).

PRU

As you can see from the chart, the financial and life insurance firm has had a very nice upside run, but it’s now beginning to fade. If the selling pressure intensifies, PRU could easily drift down to $45.00 and below. If we get any sort of bounce, don’t be surprised if we add PRU puts to our ledger.

When it’s time to make any new plays, you’ll be the first to know. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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