Danger Alert
Dow Breaks 50-Day (Can it Hold?)
Dear Bottarelli Research Member,
On an intra-day basis, the Dow Jones Industrial Average has just broken below the 50-day moving average. This is something that we need to monitor very carefully. After all, back in early October and again in early November of 2009, the Dow penetrated this level, only to quickly rebound (thus offering up a false breakdown). If this pattern holds true, then we could have a nice opportunity to add some discounted calls to our trading ledger. But if this level does not hold, then lookout below. As you can see from the 200-day moving average (the red line that’s barely visible at the bottom of this chart), the resulting downside could realistically continue all the way down to 9,400. That’s 1,000 points lower than current levels.
As always, I’ll keep you fully abreast of the best way to trade. But right now, it’s imperative that we maintain two-sided positions (like our earnings strangles) combined with downside protection. In that spirit, maintain your WDC February 43 Puts (FJI NQ) and WDC February 46 Calls (FJI BT), IOC February 70 Puts (IOC NN), HOG February 25 Calls (HOG BR) and HOG February 24 Puts (JOZ NH), and FAZ February 17 Calls (FEW BQ).
And as always…
Lock and load!
Sincerely,
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