Your Tuesday Update

NKE, JOE, RIG and Taking Profits on NWS

Dear Bottarelli Research Member,

First thing’s first: I think today’s gains in both Nike (NKE – NYSE) and St. Joe (JOE – NYSE) are getting way too overextended.

Starting with Nike, let’s not forget that they reported a 13% drop in quarterly profit, but since that number actually came in above Wall Street’s expectation, the stock gained $3.78 on the day. After that pop, the chart showed very strong signs that the bulls were exhausted, which is why we initiated a speculative put trade on the NKE October 55 Puts (NKE VQ). After entering these puts for $1.15, they did trade as high as $1.30 today before Nike decided to rally alongside the Dow and shoot higher.

I told you earlier this week that Nike is approaching an established ceiling right around the $88 and $90 level — and I still feel that way. NKE’s 2005 high was just around the $91.54 level, which has acted as a “take profits” level for the last 2-years. I fully expect the stock to fill at least some of the upside gap prior to October expiration, so you pure speculators may decide to play that down-move. But as for our model portfolio, the NKE October 55 Puts (NKE VQ) have hit our $0.75 stop.

Moving onto JOE, I still am amazed that the homebuilders are using putrid news as a basis for a rally. The thinking is that the depressed expectations, lowered earnings guidance, and nationwide housing price reductions have officially marked the bottom — and investors are getting positioned to ride a housing turn-around in spring and summer of 2007.

That’s all fine and dandy, but we can’t lose sight of one thing: The last time I checked the calendar, we still have three months before 2006 comes to a close. Although we could witness a housing rebound in mid-2007, that still means we have 6 full months before any positive developments occur. And as we near the worst home-selling time in the season (October, November, and December), I still expect the sector to continue it weakness.

For example, Miami home builder Lennar (LEN – NYSE) just reported a net income drop of 39%, which promoted them to say that the housing market is “still deteriorating.” In fact, LEN Chief Executive Stuart Miller said “it is not clear that the homebuilding downturn has yet found a floor.” That sure doesn’t sound like we’ve hit bottom, does it? Because of this, I’d like to maintain the JOE October 55 Puts (JOE VK).

Moving onto better news, we’re getting another nice upside pop on News Corp (NWS – NYSE), which is slowly but surely getting added exposure from its online networking powerhouse MySpace. Looking at the chart, we’re approaching a critical level right around $20.50. As you can see, this level has acted as resistance over the last few months. If NWS can break through this level, we could witness a strong upside push. If not, we could trade back down — as dictated by the recent chart pattern.

Given this scenario, I’m inclined to take the conservative route and take our profits off the table. We entered the NWS January 20 Calls (NWS AD) for $1.15 and they’ve traded as high as $1.40 today, good for a 21.73% gainer. Taking the more conservative route, let’s take our money and run!

PLAY: Sell your NWS January 20 Calls (NWS AD) at or above $1.35, good for the week.

If NWS does call the $20.50 level resistance, we could have another opportunity to add more January calls once the stock moves lower and finds support. The trading pattern is pretty clear, which means we could have another opportunity to profit off NWS in the near future.

More good news. If you were not able to sell your RIG November 70 Calls (RIG KN) yesterday, you’re getting an even better exit opportunity today as they’ve traded as high as $6.00. If you haven’t already done so, take your RIG profits off the table. And as always…

Lock and load!

Sincerely,