A Lunch-Time Downturn

Position Update As Markets Move Lower

Dear Bottarelli Research Member,

I hope everyone did well on the speculative Intel trade, because the “buzz” surrounding the fate of the stock is growing like wildfire. Barron’s, for example, called Intel’s lowered guidance “one of its sharpest warnings since the tech meltdown of 2001.” Ouch!

On a five-year basis, Intel stock is down 30% and things aren’t showing signs of improvement. In fact, the stock just hit a new 18-month low as recently as last Friday. The downside is directly credited to a marked slowdown in Intel’s PC chip business, and even though the company made a big marketing fuss about their chips now being inside Apple Computers, that doesn’t make up for the market-share they’ve recently lost to the likes of AMD.

I bring up this news after we’ve sold the Intel position because some super-speculators have told me they’re willing to take on more risk by holding the April 22.5 Puts (NQ PX) for even bigger gains. Although I’m personally a “take the money and run” type of guy, I certainly can’t blame those who want to hold the puts for even higher profits. Company turnarounds don’t happen overnight, and Intel is still very much in trouble. So if you’re still holding the Intel puts, be sure to take profits on any future weakness! All I ask is that you email me when you’ve made an even bigger found in our model portfolio.

Now, onto our open positions, starting with the puts…

AFFX May 35 Puts (FIQ QG): They have traded as high as $3.10 today as the stock hit a fresh 52-week low at $33.62. I’d like to push for a $3.30 exit price, which would give you a quick 20% gainer in a matter of days. If you like, enter a $3.30 sell price right now and tempt the floor traders to over-pay for your contracts and possibly even fill you. I’ve seen this happen on the floor — a junior trader desperate to balance out his overflow of calls may bite and buy your puts for a higher premium. Floor traders play these games with individual traders like us, so why not extend the same courtesy to them?

PLAY: Sell your AFFX May 35 Puts (FIQ QG) at or above $3.30, good for the week. I’ll be in touch to update this potential sell order as the week progresses.

MDC June 65 Puts (MDC RM): The homebuilding sector continues to pile on the weak numbers, which has ever-so-slowly pushed MDC stock lower over the past few days. This push has priced your puts exactly even with your entry price. One strong shot lower and we’ll be selling for a profit.

APOL May 50 Puts (OAQ QJ): They’re experiencing shocking upside today based off news that’s not even associated with their company. Education Management (EDMC – NASDAQ) is a competing private post-secondary education company, and today the stock is shooting up 13% on news that the company has accepted a $3.4 billion buyout — a nice 16.3% premium over Friday’s closing price. This news has pushed up all the education-services companies on speculation that could be taken over as well — and this had pushed shares of Apollo Group up 5% to $50.71. Maintain your stops at $2.00, but if we can withstand this one-day news push, shares should re-establish the downside.

CHE April 55 Calls (CHE DK): I continue to like the stock, as today’s chart formation finally looks to have settled on a bottom basis of support to fuel the next rally. On the same hand, I want to be realistic about the position and not let my trading thesis take precedence over my trading rules. Therefore, maintain the calls but adhere to your $2.00 stop.

Eaton Vance August 25 Calls (EV HE): The stock has drifted lower after the big one-day down-move, and I’m looking for the stock to find support just at the $27.00 level. Just to reiterate, the company is in a prime position to capture a growing market of investors looking to tailor their investment planning around their own principles and risks, and there is no better company than Eaton Vance. Maintain your longer-term call position in EV.

Moody’s May 65 Calls (MCO EM): The stock continues to shrug off the downside market fundamentals and remain above our entry prices. I’d expect this one to be a really nice winner in the coming weeks. Maintain your call position in MCO.

BDX June 60 Calls (BDX FL): The last five trading days have witnessed a lot of bouncing around with very little upside or downside action in BDX. When you find a stock in equivocation patterns such as this, always consult the overall trend when trying to identify the next move, and that overall trend has indeed been up. Maintain the call position in BDX.

Lock and load!

Sincerely,