A Strange Session

Add BG and ICE Calls

By Bryan Bottarelli
Thursday, April 24, 2008 3:07 PM EDT
Thu, 24 Apr 2008 19:07:00 GMT

PLAY: Buy the BG May 125 Calls (BG EE) at or under $5.90, good for the day.

PLAY: Buy the ICE May 165 Calls (IHH EM) at or under $5.30, good for the day..

Dear Bottarelli Research Member,

We’re more than halfway through one of the strangest market sessions I’ve seen in quite a while. It all started yesterday after the close, when Apple Computer (AAPL – NASDAQ) reported blowout earnings — and their stock traded as high as +$10.00 and as low as -$4.80 within 30 minutes after this release. This same up and down pattern in AAPL has continued into this morning.

Further adding to the odd trading session are shares of Potash of Saskatchewan (POT – NYSE), which reported blockbuster earnings of their own — and yet the entire agriculture sector is selling off in response to this news.

POT

All told, virtually every “momentum” stock on my screen was taking a pounding this morning, yet the Dow was only down fractionally on the day. And then, as the morning turned into the afternoon, the Dow reversed course and blasted 170-point higher (noted by the chart below) without leadership from energy, oil, agricultural, metals, or even solar stocks. Financials, of all sectors, are currently leading the charge.

DIA

Like I said, it’s a very odd trading session — and I think we could see a rather substantial “snap-back” in many of the momentum names that are getting white-washed today. For example, most of the recent upside rally was fueled by all of these very momentum sectors, so it’ll only be a matter of time before the old mentality of “buy on the dips” comes back onto play on names like POT, MOS, SPWR, APA, EOG, DE, AGU, MON, PCU, X, est. So while we continue to hold our ABX June 42.5 Calls (ABX FV), I’d like to make an attempt at playing this forthcoming bounce on a company that I mentioned earlier this week: Bunge (BG – NYSE).

BG

Similar to POT and AAPL, BG also reported blockbuster earnings today, posting a 70% increase during the first quarter. They earned $2.10 per share versus the Thomson Financial estimate of $1.14 per share, which by all counts a blowout report. Yet we’re certainly not seeing a positive upside reaction in the shares. In fact, BG originally sold off on the news, but buyers are now coming back — as you simply cannot ignore a company on such an amazing run. On any agriculture-based bounce, BG could rocket higher, so let’s play this move using May calls.

PLAY: Buy the BG May 125 Calls (BG EE) at or under $5.90, good for the day. Place a protective stop limit at $3.10 and a pre-determined sniper sell at $7.20.

We also have another unique situation to get positioned in shares of InterContinental Exchange (ICE – NYSE). ICE shares experienced some weakness earlier in the week based upon the earnings report from CME Group (CME – NYSE), but as you can see below, the shares are now making a strong bounce off its 200-day moving average. If this level can act as a solid support point, ICE could move up rather quickly, so let’s play this pending upside move using May calls as well.

ICE

PLAY: Buy the ICE May 165 Calls (IHH EM) at or under $5.30, good for the day. Place a protective stop limit at $2.80 and a pre-determined sniper sell at $6.70.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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