Markets Continue to Struggle

Take More Put Profits

PLAY: Sell your MDC June 65 Puts (MDC RM) at or above $8.10, good for the day.

Dear Bottarelli Research Member,

Without question, the markets have been struggling to maintain their upside strength. This is clearly seen in the performance of our trading ledger, as all the winning trades recently have come by playing the market downside via puts.

Our open put play on MDC June 65 Puts (MDC RM) has broken into profitability as the stock hit a fresh 52-week low of $58.50. Plus, our closed winners in AFFX May 35 Puts (FIQ QG), Intel April 22.5 Puts, and Lear April 25 Puts (LEA PE) have been countered with weakness in positions like the CHE April 55 Calls (CHE DK) and the Eaton Vance August 25 Calls (EV HE).More on CHE and EV below.

As I’ve maintained all along, keeping a steady collection of calls in up-trending companies combined with puts in down-trending companies allows you to make consistent profits no matter what happens in the overall markets. Of course, that collection of calls and puts is tempered with protective stop losses that allow you to cut the losing plays short. This is a reality of trading, and it’s something that’s already factored into the system. To be honest with you, I’ve maintained a super-fast trigger finger lately just to lock in short-term gainers. As we progress together in this service, I plan to let the winning positions run longer to maximize your profits. That means a 27% gainer could be extended into a 50% or 100% gainer as you grow more comfortable with the system.

But as for today, I’d like to continue the mode of taking quick-hit profits off the table. That means I’d like to try selling your MDC June 65 Puts (MDC RM) for the best possible exit price. As I write, the MDC puts you entered for $7.10 currently trade between $7.70 and $7.80. Selling for $8.10 would represent a 14% gainer — so that’s what I’d like to do.

PLAY: Sell your MDC June 65 Puts (MDC RM) at or above $8.10, good for the day. To avoid the situation that just happened with AFFX, place this order good for the day. If prices do not trigger today, we’ll re-evaluate the position tomorrow.

AFFX FOLLOW-UP: Speaking of AFFX, I’ve received some e-mails about it so here’s a quick recap of that trade. Yesterday afternoon, I instructed you to enter a $3.30 sell price on the AFFX May 35 Puts (FIQ QG). The puts closed at $3.20, which did not trigger a sell. Then first thing this morning, I watched as AFFX gapped lower on the open which bumped the put prices up to $3.50 and $3.60. Noting this price gap, I quickly send out a “take profits” alert hoping that everyone would be able to get the higher exit price. Point blank, I was simply trying to get everyone the best sale price possible — but some members got filled for $3.30 at the open and some members got filled for $3.60 at the open. It was all a matter of where your orders were placed in the trading queue. Either way, I was just trying to facilitate the best possible exit price to maximize your gains. Nevertheless, everyone made a gain on the play. And remember, nobody ever goes broke taking profits.

UPSIDE WATCH LIST: I’ve also been asked what I’m watching on a day to day basis. On the bullish side, two companies just announced stock splits, which is virtually always a bullish sign. Why are stock splits bullish? Because by offering more shares at a lower price is managements’ way of instantly creating more investor interest, publicity, and liquidity all in one fall swoop. Two new companies that just announced stock splits are General Dynamics (GD – NYSE) and Atwood Oceanics (ATW – NYSE).

General Dynamics has been entrenched in a solid 2-year uptrend, going from $90 a share up to $130. Currently trading for $125, it may be a nice time to enter calls in advance of the stock split. Atwood Oceanics just touched $100 a share and then promptly sold off $10. It currently trades for $91.40. Both stocks remain upside call candidates for a possible future trade.

DOWNSIDE WATCH LIST: On the bearish side, American Pharmaceutical Partners (APPX – NASDAQ), St. Joe Co. (JOE — NYSE) and Deluxe Corp. (DLX – NYSE) have all displayed signs of longstanding market weakness.

APPX just recently broke down past the $40 level, attempted to rally back above it, and promptly failed again. The $40 level is now acting as resistance instead of support. Currently trading for $29.09, the next stop could be October 2004 low just above $20.

As far as JOE, the company used the $60 level as support in October of 2005, but a recent move below the $60 level means that a follow-on move down to $50 could be in the cards.

And then there’s DLX, a stock that has gotten absolutely slammed over the last 6 months, dropping from $40 in September of 2005 down to current levels of $25.00. All three companies remain downside put candidates for a possible future trade.

STOPS: As I mentioned above, the recent downside market action has picked off two of our upside call plays. Both the CHE April 55 Calls (CHE DK) and the Eaton Vance August 25 Calls (EV HE) have been stopped today at $2.00 and $3.00 respectively. If you haven’t already done so, adhere to our trading rules and close each position at the designated stop price. This is unfortunate, as I continue to like the upside story in each company. Not to worry, we’ll look to make up these trades on the next round of market strength.

Lock and load!

Sincerely,