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There’s always a bear market somewhere. And if traders hadn’t noticed, there’s one staring them in the face from the very fragile perch of a potential triple bottom in the S&P500 (SPY). What’s gotten the market into such a position? The question is more of what hasn’t been used to incite bulls into a very mad money state of mind. Ongoing and fresh surfacing of credit-related problems from the Anchor Bankers and now the autos (GM, F), as well as that ever-bubbly black stuff (USO) top the list of reasons behind the high, umm low wire act currently found on our charts.

What will tomorrow bring? Other than an anticipated decent-sized gap related to trader’s reaction to the monthly jobs data, I’m personally not sure about the direction. On the one hand, decent “government style and good enough” extremes in the VIX and the fore-mentioned triple bottom make the directional strategist in me want to embrace the bull in front of the report.

At the same time though, there are other factors that suggest missing the proverbial bottom by a day or two may not be such a bad idea. For one, there’s the beyond-reproach Dr. Cramer pointing to an oversold S&P 500 oscillator, which admittedly is making me cringe. It’s the same oversold indicator that back on June 13, had the less Mad Money host banging his fists for market, which was memorable even for Jimmy.

There’s nothing wrong with being wrong of course. My divining of insider buying and chart appreciation for the still-troubled Tesoro (TSO) from last week’s HOTSHOTs is acknowledged as being wrong, umm early. However, admittedly our not-mad-and-sweating-it-enough host and his second attempt at showing the world that Jimmy knows bottoms, has helped this corner to think “not yet.”

But what if I am wrong and the fore-mentioned “good enough” conditions prevail? Well, my thinking is that for bulls, bargain-hunting in those obscenely mad money stocks that are littering the financial landscape, is one approach. Looking beyond the easy-to-pick and still picked on financials (XLF), I’d like to present one stock of that badly beaten caliber, other than Tesoro of course. Another approach is going with what’s still strong in the market. There’s certainly less of that left after Wednesday’s clubbing in places like coal (CNX, MEE, BTU) and many industrial metal (X, RS, NUE) stocks. However, there are a still a few worthy of that type appreciation and made a bit better with the use of options.  

Figure 1: Gushan Environmental (GU) Weekly

Don’t blame Jimmy if you’ve been involved in the mostly uniform and on-the-skids Chinese market. Sure he had his Four Horsemen of China and a likely assortment of “Must Buys”, but without question you received his timely confirmation to exit months ago in your spam mailbox. That being said, one Chinese-based name Dr. Cramer still likes, as a “spec” (June 17, 2008), is the recently IPO’ed and bio-diesel play, Gushan Environmental (GU).

Technically, there are more bloodied stocks out there to be certain. But without getting into potential credit-related hazards, Gushan’s seven week “Monbackie-style” bullback looks to have found a floor within a still-existing uptrend, depending on how one qualifies that sort of thing. Above, I’ve qualified the action by drawing in parallel channel lines. Additionally, I like the fact that GU has consolidated tightly for the past three weeks off channel support, while at the same time “shaking” just enough to take out stops playing too close to those easily-spied weekly pivot lows.

Figure 2: PS DB Agriculture Fund (DBA) Cup with Handle

Do you see what I see? If you do, you’re seeing a “second helping” or second handle situation, if you’re willing to “Do Business As” a bull. The PS DB Agriculture Fund (DBA) focuses on soft commodities like wheat, soybean, sugar and corn. Rolled out in 2007 by Deutsche Bank, the DBA isn’t tied to any listed stocks, but rather commodity futures, which can make for some pricing deficiencies versus the spot month. That being said though, after reading up on the space and seeing it as a somewhat under-the-radar spot within the mostly-strong commodities universe, this market observer does see the upside opportunity for this area.

Also working in its favor, aside from the “second helping” handle being carved out, is the DBA’s listed options. Liquidity is quite reasonable with mostly .10 to .20 wide markets, while single width strikes add to the attractiveness of the product as the opportunity for tailor-made positioning is afforded.

Chris Tyler
Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual. 

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