The YHOO Pump

Market Rallying On Tech News

By Bryan Bottarelli
Friday, February 01, 2008 10:15 AM EST
Fri, 1 Feb 2008 15:15:00 GMT

Dear Bottarelli Research Member,

The combination of last night’s Google (GOOG – NASDAQ) earnings miss combined with this morning’s January payrolls number (which fell by 17,000 compared to the economist’s forecast of an 85,000 gain!) should have send the markets spiraling lower on the open of today’s trading. But luckily for the bulls, Microsoft (MSFT — NASDAQ) swooped in the saved the day, making an unsolicited offer of $44.6 billion for shares of Yahoo (YHOO – NASDAQ). This offer represents a 62% premium over YHOO’s closing price yesterday , and make no mistake, this is the driving force that’s carrying the market’s early upside pop. Just look at the YHOO chart below and you’ll see what’s powering the NASDAQ:

YHOO

But I wonder what’ll happen if YHOO declines MSFT’s offer? How fast do you think the $9.00 that YHOO’s shares are up right now will evaporate? Whatever happens with MSFT and YHOO, you should know the drill by now. Ever since the calendar moved to 2008, the bears have been selling off any market rally — and I would expect so see the same situation today. Therefore, I want to maintain our DIA February 122 Puts (DAW NR). I still don’t think that the bears are done selling into the market, especially since the Dow is still trading below its 50-day moving average, so I want to own this cheap form of downside insurance to profit off any sharp downside move. In fact, I’d like to use this early upside gain (which I think will be short-lived) as a prime opportunity to add to our DIA put play, so here’s the play:

INDU

PLAY Buy more DIA February 122 Puts (DAW NR) at or under $0.90, good for the day. Lower your protective stop limit to $0.35.

At the same time, maintain your IBKR March 35 Calls (QBO CG). I’m targeting $2.30 as a sniper sell price, which would represent a 24.32% gain off yesterday’s $1.85 entry price. As you can see, the chart still looks very strong, so let’s look to lock in gains in any further upside moves.

IBKR

I’ll follow up on the action as the day progresses, but until then:

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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