New Call, New Put

Add LSTR and AGN to Your Ledger

By Bryan Bottarelli
Monday, February 26, 2007 12:54 PM EST
Mon, 26 Feb 2007 17:54:00 GMT

Dear Bottarelli Research Member,

Over the last 3 months, the markets have absolutely exploded to the upside on any takeover news — and this morning was no exception. The Dow futures were showing a 48-point gain when TXU Corp (TXU – NYSE), the biggest power utility in Texas, agreed to $45 billion buyout. In the same breath, speculation of another $54 billion buyout surrounded Dow Chemical (DOW – NYSE), which all helped the early morning markets blast to the upside. But what’s interesting is that this bullishness quickly subsided.

Unlike past months — where buyout rumors pushed the major market averages higher all day long — today’s news was only able to maintain a bullish position for the morning hours. As I write, the Dow has now turned negative– perhaps signaling that the bulls have become exhausted. As a result, I’d like to add a new put to our ledger in the form of Landstar Systems (LSTR – NASDAQ).

Landstar is a transportation and logistics company that serves shippers in the United States, Canada, and Mexico. It’s a member of the Dow Transport sector, and as you can see by today’s Transport chart, rising oil prices (which quietly touched above $61 a barrel) are causing a new round of bearishness on the Dow Transport sector.

TRAN

Looking specifically at LSTR, late January witnessed the stock push aggressively higher — and this bullishness continued for most of the month of February. But today it looks like LSTR’s momentum is subsiding, which means the bulls are taking their profits off the table. Based on this chart formation, it appears like LSTR’s next move would be down to the 200-day moving average at $43.50 with a possible move down to the 50-day moving average at $42.00. That’s a minimum downside move of $3.00 from current levels, so let’s get positioned in LSTR puts.

LSTR

PLAY: Buy the LSTR April 45 Puts (QRY PI) at or under $1.75, good for the day. Current bid/ask spread is $1.50 to $1.65. Place a protective stop loss at $0.80.

On the flipside, I’m seeing a very strong upside possibility in shares of Allergan (AGN – NYSE). As you know, I’ve spoken about AGN in previous alert bulletins — calling the company my favorite demographics play on Wall Street. With a loaded product pipeline that includes temporary itch relief associated seasonal allergic conjunctivitis, the powerhouse seller Botox, Tazorac gel for plaque psoriasis and acne, and Avage for facial fine wrinkling, AGN is wonderfully-positioned to benefit from aging Americans wanting to maintain their youthful appearance.

AGN

As you can see by the chart, AGN has been moving lower in recent weeks, but today’s up-tick could signal that the stock has established a bottom right at the 200-day moving average. If this is indeed a near-term bottom, the stock could shoot up to $120 in no-time, good for a lightening-quick $6.00 upside pop. Based on this formation, let’s add AGN calls to our ledger with an April expiration to allow some lag-time to witness the full move. Here’s the play:

PLAY: Buy the AGN April 115 Calls (AGN DC) at or under $3.50, good for the day. Current bid/ask spread is $3.30 to $3.40. Place a protective stop loss at $1.90.

In terms of our current positions, Input/Output (IO – NYSE) is looking good today, as the stock just set a new 52-week high at $14.40.

IO

The longer-dated IO August 12.5 Calls (IO HV) that we entered for $2.65 have traded as high as $2.90 today, to maintain the position for more upside gains. And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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