Your Friday Wrap-Up

WFC, CRDN, and Re-Visiting TXU

By Bryan Bottarelli
Friday, August 18, 2006 12:51 PM EST
Fri, 18 Aug 2006 17:51:00 GMT

Dear Bottarelli Research Member,

As we close the books on a week that was surprisingly bullish, it’s important to set the table for next week’s trading. Looking at the Dow chart below, you can see two strong upside days — triggered by what Wall Street is calling “inflation-friendly data.”

I find this interesting — because “inflation friendly data” is just another way of saying “data that’s slightly more negative than positive.” Any rally on data like this will be short lived, in my view. After all, a rally predicated on less-than-stellar economic news cannot be sustainable. That’s why I’m going to maintain a slight bias on the put side of the ledger going into next week.

INDU

Of course, I’m surprised that the Dow has been so resilient today, but looking at the last two candlestick formations indicates that the bulls could be running out of steam. For that reason, I’d like to maintain our positions in both the WFC October 35 Puts (WFC VG) and the CRDN September 45 Puts (AUE UI).

One play that I must categorize in the “head scratcher” category is TXU (TXU — NYSE). Today, the stock is up $1.30, which should’ve been the up-move we experienced earlier this week! As it stands, TXU drifted lower as the markets were overly strong — and is now moving higher as the markets are flat. Like I said, I can’t explain why this is happening, but it does support my underlying bullish thesis on the stock.

TXU

Yesterday, TXU declared their regular quarterly dividend of 41 cents per share, which will be paid on October 2nd to any shareholders at the close of business on September 1st. Looking at the chart, TXU could now be finding a support basis to challenge their recent high above $67.50. If a move of this nature looks imminent, I’m not opposed to jumping back into the September 65 Calls (TXF IM).

Next week, I’d like to add a call position to our ledger — just to balance out our two puts. Then, we’ll get back into taking quick profits no matter what the market throws our way. Until then have a good weekend. And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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