A Muted Friday

Updates and Set-Ups for Next Week

Dear Bottarelli Research Member,

So far it’s been a rather muted trading day on Wall Street — as the Dow is making a sheepish attempt to close out the day with its 5^th gain in a row. But even with this recent winning streak, it appears like the Blue Chips are one again encountering trouble right at the 50-day moving average. Take a look:

When you’re studying this chart, keep in mind a few important points. First of all, the level that we’re current trading at is the same level that triggered the dramatic downside move in late February. At the same time, the big up-move that we experienced this Wednesday was driven primarily by the market’s surface-level interpretation of the Fed’s latest policy statement. From what I can tell, most of the gains from the ensuing rally came more from short-covering then from actual new buying. As a result, I’m sticking to my earlier thesis that we’re not quite out of the woods yet. If we see weakness next week at this critical 50-day moving average level, then it’s time to establish a new series of downside put plays.

Leading the list of potential downside candidates is the oil sector names that I’ve mentioned in past alerts. Weatherford International (WFT – NYSE), for example, could be a name that has some room to fall. Same with Marathon Oil (MRO – NYSE).

Don’t get me wrong — I love these oil plays. I just think the short-term gains have become over-extended. In fact, this upside oil move is being further intensified today on the news from the U.K. Ministry of Defense that’s reporting 15 members of the British Navy are being held by Iranian forces. This news alone pushed crude oil prices 1.2% higher to $62.41 per barrel. But next week, we could easily see these high-prices retreat, which would be a prime opportunity for a quick downside put play. When it’s time to act, you’ll be the first to know.

In terms of our current put positions, I continue to like the DOW May 45 Puts (DOW QI). We entered them yesterday for $1.75 and they’ve traded as high as $1.80 today, so maintain this downside position for more gains. All it’ll take is a downside move to fill the recent gap and we’ll be taking profits.

Also, I’m still holding onto my downside thesis from the ITMN July 20 Puts (IQY SD). We entered these puts on March 20^th for $1.50 and they’re currently trading for $1.10, but I see no reason why ITMN stock should continue to rise. The recent upside move came solely thanks to JP Morgan, which raised its target from $29 to $34 because they feel investors are undervaluing the company’s key products. But let’s get real. ITMN has product candidates in the early developmental stages — and clinical data won’t even be available until mid-2009. The stock has zero upside catalysts until this 2009 data is presented, which is why I remain strong on my downside bias.

Over on the call side, we’re looking rather good. The FDX May 115 Calls (FDX EC) that we entered on the 21^st for $2.45 have traded as high as $2.55 today, and FedEx is in the process of recovering from its intra-day lows of this week. Just to reiterate — this was a pure bottom-feeding play on an investor over-reaction to cautious statements contained in their most recent earnings call. We’re playing a quick rebound here — and so far the play is looking good.

Lockheed Martin (LMT — NYSE) is also a stock that I remain bullish on. The stock was pushed down yesterday on news that Goldman Sachs downgraded Raytheon (RTN – NYSE), but the downgrade was due to RTH’s inability to maintain the high level of growth compared to its peer group. In other words, Goldman was calling RTH an under-performer in a strong market sector — which actually paints a bullish picture for LMT. As a result, LMT has recovered today and I’d like to maintain our LMT June 100 Calls (LMT FT).

And finally, our NDAQ June 30 Calls (NDQ FF) are also just about to break into the black. As you can see, the stock is slowly inching its way back — and I expect to have profits in hand very soon. I continue to remain bullish on the publicly traded exchanges, and NDAQ offers you the best risk/reward scenario at these low levels. Hold for more upside.

Looking at next week, we’ll get back into the groove of more winning trading action — but until then…

Lock and load!

Sincerely,