A Fantastic Buying Opportunity

By

Timothy Collins

 | Aug 27, 2014 | 11:40 AM EDT
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We are due for a down day. We really are, after moving 4% in only 10 days on the SPDR S&P 500 ETF (SPY) with very little recoil. A couple of downgrades in big momentum names could help us get there. Facebook (FB) saw a downgrade this morning and has yet to bounce. It is time to step aside from that name and see how the next two days play out. Yes, it has only been one day, actually one morning, but at least it shows some hesitation from dip buyers. I don't expect more than a 2%-3% dip, but the time here feels right. A short here in the SPY with yesterday's high as a stop is a great risk-reward, in my view. I'm going with the SPY $200 puts, which expire next week.

 While SeaDrill (SDRL) tries to bounce here, I'm more interested in buying a position in Diamond Offshore (DO). The news hasn't been good for the sector, but this daily chart presents a fantastic buying opportunity. The falling wedge here is actually tilted bullish. There is no way I would want to buy while in the wedge, but yesterday we broke free and pushed to the upside. Of course, we all want to catch the first day, but not in this case. In this case, I want the confirmation of the next morning -- and we are seeing it right here. The chart will be strongest over $45, but I will buy here, with a stop at $42.90. Given those parameters, one could certainly select $43 or $44 calls here as well. The upside initial target is $47. Over $47 and we have the gap fill potential to $49....158 more words left in this article. To read them, just click below and try Real Money FREE for 14 days.

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