CAT’s $1 Billion Profit

Plus, Look to Take Profits on MEDI and RIG

By Bryan Bottarelli
Friday, July 21, 2006 9:55 AM EST
Fri, 21 Jul 2006 14:55:00 GMT

Dear Bottarelli Research Member,

A few quick notes to start your Friday…

First off, I’d like to try taking quick profits on our MEDI August 27.5 Puts (MEQ TY). In the current market environment, there simply is no trend that lasts longer than one day. As a result, you get weeks like we’ve just experienced on the Dow, which brought a 100-point down day followed by a 211-point up day followed by an 80-point down day. With trading patterns like this, the tactical trading position should be to take immediate profits as quickly as you can — because a gain one day could easily translate into a loss the next. In that spirit, I’d like to try getting filled on our MEDI August 27.5 Puts (MEQ TY) at or above $2.50, good for the day.

MEDI

PLAY: Sell your MEDI August 27.5 Puts (MEQ TY) at or above $2.50, good for the day.

I’d also like to take a quick gain on our RIG August 75 Puts (RIG TO). Noting the weakness in the oil service sector, we entered these puts yesterday for $4.40. Selling then at or above $5.00 would give us an overnight gain of 13%. Current bid/ask on these puts is $4.90 to $5.00, so let’s take our fast profits and try to get filled in today’s trading.

RIG

PLAY: Sell your RIG August 75 Puts (RIG TO) at or above $5.00, good for the day.

In other news, heavy equipment maker Caterpillar Inc. (CAT – NYSE) reported nothing short of brilliant earnings. Their better-than-expected 38% increase prompted them to raise their outlook for the full year — bolstered primarily by strong sales to the mining industry. CAT’s sales rose 13% to $10.605 billion, as second-quarter profits rose to $1.046 billion. That’s $1.52 a share versus $1.08 a year earlier. The higher analyst had an expectation of $1.42 a share, so CAT beat everyone by a dime!

Although CAT’s shares were up big in pre-market trading, the stock is only up $0.40 as I write. With these new numbers, I can’t be anything but bullish on CAT.

Lock and load,

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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