Closing out Q1 2008

Watch RIG and PCLN for Upcoming Plays

By Bryan Bottarelli
Monday, March 31, 2008 10:11 AM EDT
Mon, 31 Mar 2008 14:11:00 GMT

Dear Bottarelli Research Member,

As we close out the last trading day of Q1 2008, we’re facing a market that’s trying to determine its next major move. Last week, for example, commodities put in a considerable pullback while gold suffered its biggest weekly drop in 28 years. Barron’s argues that the commodity gains we’ve witnessed have come from speculators driving prices abnormally high — which results in large price swings that we’ve seen lately. Whether that’s accurate or not is debatable — but what’s important for us is how to properly trade these movements to ensure consistent trading profits.

My approach thus far has been to play calls on companies exhibiting strong charts at the same time as playing puts on companies exhibiting weak charts — and use the intra-day volatility to lock in quick gainers. Until the market volatility subsides (as measured by flat trading patterns in the VIX) we’ll continue to adopt this trading tactic.

VIX

Let’s move over to our current positions. At the close of Friday’s trading, our FDG April 55 Calls (FDG DK) triggered our designated stop order at $1.80. Therefore, this position is now closed. But better news comes from our BNI April 90 Put (BNI PR). As you know, we entered these puts on March 27th for $1.90 and they’ve traded as high as $2.25 in today’s trading. That’s only $0.10 away from our pre-determined sniper sell at $2.35, so be sure to lock in your profits on any continued weakness. Also maintain your DIA April 114 Puts (DIA PJ), as all we need is one strong downside move to snap this position back into gear.

In terms of new plays, Transocean (RIG — NYSE) continues to look strong — as today’s candlestick formation once again signals that continued upside gains are ahead the (arguably) the world’s best deep-water driller.

RIG

On the flipside, I was absolutely shocked to learn that shares of Priceline.com (PCLN – NASDAQ) are currently trading over $123.00 per share. After all, the company is nothing more than an online travel company in the United States and Europe which provides airline tickets, hotel rooms, car rentals, and vacation packages to its users. Furthermore, I was even more shocked to learn that the investment-arm of their business called Priceline Mortgage Company LLC offers financial services like mortgages, home equity loans, and banking. I’m sure you know that any stock with lending exposure has gotten clobbered lately — but it appears that many investors don’t realize that PCLN has a large segment of their business committed to this arena. When word circulates that PCLN is indeed involved in lending, I would speculate that the shares would take quite a substantial hit, so I’ll be watching this one for an immediate put play opportunity.

PCLN

If and when it’s time to act on RIG or PCLN, you’ll be the first to know. But until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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