Moving In The Right Direction

All Open Plays Moving Correctly

Dear Bottarelli Research Member,

First and foremost, I’d like to officially welcome the newest Charter Members to Bottarelli Research. You’re now part of a unique group of “lock and load” traders — and I’m glad to have you on board.

Before getting into today’s update alert, I’d like to quickly summarize our latest positioning tactic just to make sure everyone’s on the same page.

As you know, the major market averages have all been hitting multi-year highs. No matter if we’re talking about the Dow, the Russell 2000, or the S&P 100, all the significant indices have, at one point or another, reached a new high water mark. Does that mean we should invest 100% on the long side? Not by a long-shot.

What’s interesting to me is that this rally has been one of the weakest upside pushes I’ve ever seen. Although the markets are indeed hitting new highs, they’re beating their recent highs by a matter of pennies — and then quickly retreating and selling off. So technically speaking, new intra-day highs are being set, but they almost always are followed by a sell-off. For example, take yesterday’s trading action on the Dow…

It opened at 11,275, quickly rallied to a new high of 11,334 (a respectable 59-point gain), and then reversed course and closed the day down at 11,235 (an eventual 40-point loss). This sort of “bump and run” action has been apparent in many of the major market averages recently — which is why I’m stressing that we keep a constant balance of upside calls and downside puts in our trading ledger.

Right now, we have three open positions: 2 upside calls and 1 downside put. As of yesterday, we had another call position, the DRS April 50 Calls (DRS DJ), but we took a nice profit on that play either yesterday afternoon or first thing this morning.

So as it stands, our current ratio of two calls to one put keeps us biased to the upside — which is supported by the new technical highs — and it also keeps us positioned to capitalize on the quick snap-back selling pressure that we’ve witnessed in recent weeks.

This constant balancing act allows you to make money no matter what happens to the overall markets. And until the markets flush out an established trend, we’ll keep this balancing act going — taking quick hit profits all along the way.

Our two call positions are the SMG June 45 Calls (SMG FI) which we bought on 3/21/2006 for $3.20 and the BDX June 60 Calls (BDX FL) which we bought on 2/23/2006 for $6.90. I’m happy to report that each stock is indeed higher today.

In terms of Scotts Co, I think the stock has established a support point at $46.00 and will soon reach — and break — the $48.00 level established at the 50-day moving average. Owning call options that allow us to profit off this thesis until June will make for a nice steady and consistent winner. These calls traded as high as $3.40 today.

In terms of Becton Dickinson, the stock has shown two strong bounce points off the 50-day moving average — which I’m hoping signals an attempt to break the recent high just above $65.00. Just like the thesis in SMG, owning calls into the month of June should give us plenty of time for this move to play out. These calls currently trade between $5.80 and $5.90.

Our one put position is the FRO May 35 Puts (FRO QG), which we bought on 3/13/2006 for $1.95. Looking at the chart, I think that it’s only a matter of time before FRO breaks down under the $35.00 level, which would probably lead to the stock falling $1.00 very quickly — and not finding any support until it’s in the high $33.50 range.

This move should easily push your May 35 puts, which you bought for $1.95, past my target sell price of $2.40. These puts traded as high as $1.95 today, so we’re right at our original entry price.

Lock and load!

Sincerely,