Warning Signals Confirmed

Maintain Downside Positions

Dear Bottarelli Research Member,

Good morning. Why did I stress the importance of remaining protected to the downside? Today’s ugly opening tells you the answer.

The selling pressure today is coming thanks to new data from the Labor Department, which reported that the number of people filing first-time claims rose 22,000 to a seasonally adjusted 496,000 last week. Sift through all of the seasonal adjustments and so forth, and the bottom line is jobless claims have increased in six of the first eight weeks in 2010 – which has re-ignited fears that the nation’s labor market could be weakening, as opposed to the strengthening that everyone factored in during the last six months of 2009. From a job perspective, if things are indeed getting worse, and not better, then the markets are certainly in trouble.

As you can see from the S&P chart below, yesterday’s rally attempt has once again failed at the 50-day moving average, which offers further proof that the bulls are becoming exhausted.

With the backdrop, let’s quickly review our positions…

• The WHR March 80 Puts (O:WHR 10O80.00) that we entered yesterday for $1.55 have opened at a high of $1.90, good for a 22% gain.
• The SDS March 35 Calls (O:SDS 10C35.00) that we entered on February 23^rd for $1.60 have opened at a high of $1.98, good for a 23% gain.
• The FAZ March 18 Calls (O:FAZ 10C18.00) that we entered on February 23^rd for $1.48 have opened at a high of $1.65, good for an 11% gain.

Hold all of your downside positions for more market weakness. And at the same time, let’s also maintain our upside positions. After all, you never know when we’ll see the next freak market reversal. This means hold your GMCR March 85 Calls (O:GMCR 10C85.00) and your SHLD March 95 Calls (O:SHLD 10C95.00).

As always, I’ll be out with further updates as the day progresses. But until then…

Lock and load!

Sincerely,