My Take on the Quick Movers

Neophyte Fed Chief Causing Unnecessary Volatility

By Bryan Bottarelli
Tuesday, May 02, 2006 3:31 PM EST
Tue, 2 May 2006 20:31:00 GMT

Dear Bottarelli Research Member,

First off, I’d like to congratulate everyone on a good day of trading. Our gains on the

ADM May 35 Calls and the SLB May 70 Calls (SLB EN) more than offset our slight loss on the PCU May 100 Calls (PCU ET).And like I said earlier, I very well expect to make up that PCU trade when we re-enter the position again soon.

I must admit, I was a little concerned last night when I watched Cramer predict on his Mad Money TV show that ADM “would sell off” no matter how good their earnings were. Then I remembered that he predicted that Goldman Sachs (GS – NYSE) would sell-off on the eve of their earnings report — but instead Goldman rallied like a big dog. Comforted by that thought, I was confident that Cramer was wrong and ADM would have a good day today — and it did! If you watch tonight, I expect him to eat a hot plate of crow! Not to be outdone, SLB also logged a great day as the stock hit a new high of $72.90. So to everyone who successfully traded both ADM and SLB today, give yourself a pat on the back!

Now, I’d like to address a question I’ve been getting lately about the market volatility. In short, “why are some of these picks moving so fast?” Quite frankly, the simple answer is the naïve actions of rookie Fed Chief Ben Bernanke.

Yesterday, the market was in an uproar after what’s being called a Fed “misunderstanding.” But in reality, it’s nothing short of Bernanke not keeping his big mouth shut. Apparently, Mr. Bernanke was attending a White House Correspondents’ dinner on Saturday when he told CNBC reporter Maria Bartiromo that he had not intended the markets to infer that the Fed was nearly done raising interest rates.

You can guess what happened next. Reporting live from floor of the Chicago Mercantile Exchange, Bartiromo said “I asked him whether the markets got it right after his congressional testimony and he said, flatly, no." According to what I’m being told, the roar that erupted on the trading floor after hearing those words nearly drowned out the rest of her remarks. And with those words came yesterday’s dramatic selling pressure at the close of trading. What’s worse, stocks had unexpectedly rallied on Bernanke’s testimony just last week!

My Point is This: The volatility we’ve been experiencing lately is not natural. And of course, the fast moves of the stocks we’re trading is also not natural. Of course, sometimes trades move fast. But lately, the moves are simply the result of a market that’s being stirred too violently by a Fed Chief that’s just getting the hang of what not to say. Hopefully from now on, the guy just keeps his big trap shut!

In terms of our current plays, we’re basically sitting at break-even on both our PFCB May 45 Puts (HUO QI) and our BDK May 95 Puts (BDK QS). Tomorrow, I’d expect to come out with a new series of call positions to equal out the ledger. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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