Dow Rallies 211 Points

Double Bottom Reignites Bulls

By Bryan Bottarelli
Wednesday, July 19, 2006 4:31 PM EST
Wed, 19 Jul 2006 21:31:00 GMT

Dear Bottarelli Research Member,

What a banner day for the bulls! Despite shares of Yahoo (YHOO – NASDAQ) dropping 21% to a multi-year low, the markets staged an all-out rally that drove the Blue Chips back above the psychological 11,000 level to close the day at 11,011. On that note, let’s start today by examining this unexpected run up by looking at today’s Dow chart.

INDU

As you can clearly see, the Dow has called the 10,700 level strong support on two separate occasions. Obviously, the next significant technical level will be seeing what happens when the Dow hits the critical 50-day moving average (in blue) at 11,100. If the blue chips hit this level and rally, we’ll overweight our plays to the upside, as this signals strength heading into August. On the other hand, if the blue chips hit this level and fail, we’ll overweight our plays to the downside, as this signals weakness heading into August. Until we have a clear indication either way, it’s best to remain positioned in both upside calls and downside puts to profit off any sudden market gyrations.

On the plus side, strong gains today in ATK and CELG have pushed each longer-term play back into the black. Not far behind are our longer-term plays on CAT and ABX, which could easily join ATK and CELG on the plus side on any sustainable upside strength. Looking specifically at CELG, the stock has clearly established a bottom right on its 50-day moving average. I wouldn’t be surprised if the stock made another quick run at its recent high above $48.00 a share.

CELG

Over on the put side, today’s 200-point rally certainly didn’t change my position on MEDI or MDT. Sure, each stock was up alongside the rest of the market, but the gains in each didn’t overly impress anyone. Maintain your downside exposure by holding puts in each position.

And finally, as we close the books on CDWC, it’s interesting to see how the stock finished the trading day. Of course, I still can’t believe the stock rallied with techs so weak. You have Dell, the best computer company in the world, trading at a 52-week low — yet CDW can attribute their sales growth to computer notebook sales? It just doesn’t add up, but I’m beating a dead horse. I received some questions from members still holding the puts asking if the stock could fill the upside gap. Looking at the closing day chart, it’s certainly not outside the realm of possibilities.

CDWC

If you want to utilize all of your August expiration and hold the CDW puts, I wouldn’t be surprised if the stock filled today’s upside gap by August. Heck, stranger things have certainly happened!

Lock and load,

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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