WhipSaw!

How Can $8.4 Billion be Considered “Weak?”

By Bryan Bottarelli
Thursday, April 27, 2006 5:03 PM EST
Thu, 27 Apr 2006 22:03:00 GMT

Dear BottarelliResearech Member,

“I’m on the phone right now with 3 traders I know very personally, and have mentored, they are as well in complete disbelief — everyone was getting stopped out on their shorts…. including yours truly.”

That was an email I received this morning from Charter Member M.B, which confirmed a suspicion I had this afternoon. What we witnessed today was a bona-fide market “whipsaw,” a unique situation in which markets move up and down so quickly, both the longs AND the shorts lose money.

The reason for these intense intra-day moves came courtesy of Fed chief Ben Bernanke, who warned Wall Street not to get overly-excited if he decides to pause his cycle of interest rate increases. Did Wall Street listen? Absolutely not. The mere mention of “Fed Pause” send shockwaves throughout The Street, as a 70-point morning loss flipped over into a 40-point gain in a matter of minutes. What volatility!

Further complicating the situation was Exxon Mobil. Today, the world’s largest oil company reported the fifth-highest quarterly profit for any public company in history: $8,400,000,000.00.

Despite these thunderous gains, the number actually came in below expectations! Since it did not surpass Exxon’s January report of $10.71 billion (which actually set the mark as the highest quarterly profit of any company in history), it was a viewed as a disappointing report. $8.4 billion in three months — what a bunch of slackers (note sarcasm).

To be quite honest, days like today is why it’s so important to always be positioned both to the upside and to the downside. Despite the sudden market swings, gains from our Dell June 30 puts and our PDS May 35 calls did their best to temper the volatility we witnessed in Foundation Coal and Archer-Daniels-Midland. It may not seem like much, but to be quite honest, this balancing puts you way ahead of 90% of other traders out there.

As far as the trading strategy goes for tomorrow, I’m content holding the SPY June 129 Puts (SPY RY). We entered them for $1.35, and after hitting a high of $1.70, they closed the trading day at $1.20. To remain prepared for any further volatility, hold this position with your $0.95 stop.

Like I occasionally do, I plan to let this market sort itself out tomorrow while I take the day to run scans and prepare a list of new trading opportunities for next week. After all, there’s no sense playing games with a market that’s as jumpy as a high-school student hopped up on a double-tall espresso from Starbucks. In other words, the time to pounce on our next set of plays is next week. Until then, I’ll be watching and researching the next set of winners. As always…

Lock and load,

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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