The Dow is taking another blow as the index is down 191 points to 6,684. The S&P is off 23 to 689 and well below the 700 level the bulls were clinging to. Things look bad but we have been expecting this bottoming process. I told you the Dow was at a crossroad and once we got the near-term target of 6,800 for the Dow it easy to see which road it was going to take. With sentiment being negative all week, you just knew we were heading lower. How much lower is the $64,000 question. If we can get through the week with the Dow holding 6,500 then we can start preparing for a bounce.

When things look bleak, investors flee the market. That is good news for us as Exxon Mobil (XOM, $63.02, down $2.66) continues to fade. I have been watching the April 75 calls (XOMDO, $0.44, down $0.39) which were at 80 cents when I added them to my watch list. They are now cut in half. The April 70 calls (XOMDN, $1.25, down $0.70) and the April 65 calls (XOMDM, $2.80, down $1.70) have also lost 40% of their value and are getting at attractive levels.

Exxon has been punished with the rest of the market but the good news is that the stock is finding serious support here at these levels. The support comes from its October lows of $62.36 on 10/10/08 and $62.35 on 10/15. When the stock hit $62 on 10/10, it rebounded to $73 by 10/13. So in three days the shares bounced from $62 to $73.

I’m not sure if we get that kind of bounce and we have to be careful that Exxon doesn’t break down from here. However, I love the April 70 calls here at $1.25. We have nearly 7 weeks before the calls expire and I think the rewards outweigh the risks right now.

Rick Rouse