Back in the Saddle

Addressing the Rally

By Bryan Bottarelli
Friday, April 18, 2008 9:51 AM EDT
Fri, 18 Apr 2008 13:51:00 GMT

Dear Bottarelli Research Member,

I’m back from my two-day business trip — and I must say — I’m very glad and excited to be back at the command station. Wednesday’s +250 point rally was a remarkable showing by the bulls — possibly establishing the 50-day moving average as the new near-term support point. I’ve been talking about this level for the last two weeks — and for good reason. From a technical perspective, this level is very important. Wednesday’s bounce off this level, and today’s follow-through rally, could be forcing the shorts to cover their positions and run for cover. Today’s Dow chart (below) clearly illustrates this strong showing for the bulls.

INDU

On Wednesday, the market upside allowed us to lock in sniper profits on our ABX May 40 Calls (ABX EH) and our CHK May 47.5 Calls (CHK ES), so congrats on those profits. On the flipside, our LEAP May 50 Puts (UAO QJ) were stopped, so this position is closed. And although our HON May 55 Puts (HON QK) were also showing a gain earlier in the week, Wednesday’s rally (followed by today’s earnings news) has stopped out this position as well.

I’d also like to take a moment and address the SPWR May 100 Calls (QSU ET). As you know, we entered these calls on April 11th for $4.50 and locked in a 22% gain on half of the position when they traded for $5.50 April 15th. The very next day, the market rallied +250 and these calls moved all the way up to $6.90, good for a 53% gain. In situations like this, you always lock in profits on another portion of your position. Like I’ve mentioned before, high-beta stocks like SPWR tend to rally in anticipation of an upcoming earnings release, and it’s always a safe and smart idea to use these upside moves to your advantage. Of course, you could miss out on an explosive upside move — but on the same hand — you could also avoid an earnings-related sell-off. In my book, “a bird in the hand is worth two in the bush,” so I will always recommend the pre-announcement profit-taking as long as I’m your editor. That’s just the way I trade. If anything, you could always sell a majority of your contracts in this manner, and then hold one or two just to participate in any upside earnings move. That way, you still get the best of both worlds.

SPWR

In fact, as I look at the SPWR chart, yesterdays closing weakness took shares right back to its 200-day moving average. If this level serves as support, as I suspect it should, we could be seeing a wonderful opportunity to play SPWR calls once again. In the meantime, I’m going to take the morning to get caught up on the last two days of market activity. Sould something interesting pop up, 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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