Position Update

Thoughts on FCX, FWLT, X, MA & More

By Bryan Bottarelli
Wednesday, October 24, 2007 10:40 AM EDT
Wed, 24 Oct 2007 14:40:00 GMT

Dear Bottarelli Research Member,

A powerful and influential S&P floor trader made an interesting comment yesterday.

You see, he mentioned that in the last hour of yesterday’s trading, most S&P traders had their hands facing inwards (which means that they’re trying to buy the market). While it’s unclear if this buying is a result of these floor traders scrambling to get out of their short positions — or buying to get long — the fact is that a large amount of institutional buying come in during the last hour of yesterday’s session. This tells you that the bulls are strongly defending the 50-day moving average.

SPX

But don’t could out the bears just yet. This morning, in fact, has the markets once again moving lower, thus extending the tug-of-war battle that began at the close of trading on Monday, October 15th. One look at today’s S&P chart shows that we’re testing the critical 50-day MA level once again — and hopefully we’ll hold for the second time.

If this level is penetrated, I’ll add a new series of put trades. But until then, I’d like to cautiously remain in our existing positions. After all, despite a difficult market environment, we’re actually seeing strong moves across the board. Freeport-McMoRan Copper & Gold (FCX – NYSE), for example, reported today that their third-quarter net income doubled as revenue tripled. Earnings came in at $775 million ($1.87 per share) versus $351 million ($1.67 per share) one year earlier, paving the way for total revenue to reach $17.44 billion in 2007. Since FCX is the world’s biggest publicly-traded copper mine, you don’t see tremendous market reaction to announcements like this. If this were a tech stock like GOOG or AAPL, for example, shares would be up $15.00 on this news. Although metals plays don’t seem to react like this, we should continue to hold our FCX November 115 Calls (FCX KC). The company is very strong, and I think we’ll get rewarded for our patience very soon.

FCX

The same goes for Foster Wheeler (FWLT – NASDAQ). The stock is showing signs of rallying off last Friday’s move under the $140 level, so I want to be sure that we use our November expiration and profit off any further upside moves. The FWLT November 155 Calls (UFG KK) that we recently added to are approaching our break even point, which means any market strength could quickly shoot them into the black. And if your first play was to add this position around the $4.20 level, you’re already showing a nice gain.

FWLT

I’m also sticking to my trading thesis on the MA November 155 Calls (MAL KK) and the X November 105 Puts (X WA). Mastercard has an earning announcement coming up on October 31st, and if their results come in anywhere close to what American Express just reported, we should be in fine shape.

MA

As you can see from the chart above, if the 50-day moving average holds the line of support, we could be in for a nice upside blast pretty soon. And to close things off, we’re seeing a nice retrenchment in both EXM and DRYS this morning, so I’ll continue to follow these two for trading possibilities. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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