Danger Continues
Trim Upside Exposure Now
Dear Bottarelli Research Member,
Good morning. The “whiplash” that we witnessed at the close of yesterday’s trading session is carrying forward into today. In the blink of an eye, the Blue Chips collectively decided to reverse course and dip back below the 10,000 level. Not only did this serve as a warning signal, but it was a strong reminder of just how quickly the markets can pull back. As I’ve been saying throughout this entire upside rally, I don’t trust it. Therefore, we must now proceed with a higher level of caution. Let’s review our positions.
We played the MOO November 41 Calls (MOO KO) based on earnings catalysts from POT and BG. Yesterday, I decided to reduce our risk on this play by selling half of the position, just to minimize our exposure should these companies sell-off on the news. In retrospect, this was smart advice, as this is exactly what’s happening this morning. Potash profits dropped 80% (as many expected), but they also guided their Q4 EPS below the consensus estimate. Bungee reported disappointing news as well. And unlike companies like MOS in the past, their CEOs did not paint a rosy recovery picture for 2010. As a result, the sector is trading lower, and it’s time for us to close the position out for good. Sell.
Another sharp reversal came on our EOG November 95 Calls (EOG KS). Just after entering this play, EOG was moving in our direction. But then, the end-of-day reversal pushed the markets lower, which particularly slapped the commodity sector. The strength of the U.S. dollar today combined with an over-bought market is pushing this play lower. Let’s close it out now. Sell.
When it comes to our protective SDS November 38 Calls (SSH KL), let’s maintain this position for more upside. If the markets continue selling off, we’ll be glad we have these ultra-short calls in our back pocket. Hold.
Let’s also maintain our GMCR November 80 Calls (QGM KP) and our AMZN November 100 Calls (QZN KT). The big catalyst for AMZN will be their earnings after today’s bell. I’ve heard rumors that online retail sales are forecasted to grow to 20% (up from 4%) of total retail sales in the country. This could offer the much-needed spark to our AMZN November calls. Maintain both plays.
As a closing note, this market feels like we’re navigating our way through a hornet’s nest. As I’ve mentioned before, rationalizing some of the market’s moves is no longer relevant. If that’s the case, we would’ve been beating our heads against the wall during this entire run-up. The important thing right now is to play the tape in the best manner possible. So going forward, this will be our tactical trading strategy (especially knowing that we received a strong warning signal at yesterday’s close). And as always…
Lock and load!
Sincerely,
© 2012 CSR Group, LLC. All rights reserved. Published in USA.
Information, opinion, research, and commentary contained herein is obtained from sources believed to be reliable; their reliability, however, cannot be guaranteed. The maxim of Caveat Emptor applies — let the buyer beware. Bottarelli Research does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment.
Investments recommended in this service should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Bottarelli Research reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscriber’s initials will be used unless express written permission has been granted to the contrary.
CSR Group, LLC expressly forbids its writers from having a financial interest in any security recommended to readers. Furthermore, all employees and agents of CSR Group, LLC and its affiliate companies must wait 24 hours before following a published recommendation.