Sitting Tight

Maintain Positions Into Next Week

By Bryan Bottarelli
Friday, April 25, 2008 12:38 PM EDT
Fri, 25 Apr 2008 16:38:00 GMT

Dear Bottarelli Research Member,

I’ll be honest with you. Today’s market action hadn’t offered any clear indications of what major directional move we’ll see next. Consumer confidence came in at a 26-year low, but in all my years of trading, I’ve never seen the consumer confidence number have any significant impact on the markets. Earnings from Microsoft (MSFT – NASDAQ) were interpreted as “good, but not great” and this has pushed the tech bell-weather down over 6% in today’s trading. But despite this MSFT drop, it hasn’t had any major impact on the day’s market action either. As you can see below, the Dow is still teetering in that gray-area between the 50-day and the 200-day moving averages.

INDU

But what is putting me more on the bullish side of the fence is the recent action of the Dow Transports. As you can see below, this index is leading the charge higher — fueled by new 52-week highs in Union Pacific (UNP – NYSE) and Burlington Northern Santa Fe (BNI – NYSE).According to Dow Theory, a new trend is established when you see confirming lows on both the Dow Industrials and the Dow Transports. This is certainly not happening with the high-water levels of the Transports, and that’s why my near-term bias remains to the upside.

TRAN

And if you take on a more “global view” of the Transport sector, it’s also noteworthy that the world’s top dry-bulk shipping stocks, like Dryships (DRYS – NASDAQ), are also moving higher as well. So the Blue-Chip transports aren’t the only group moving higher.

DRYS

Now, as noted yesterday, we’re seeing great earnings spark stock sell-offs. This leads me to believe that investors are simply looking for a reason to take near-term profits in some of the top momentum plays (like POT and AAPL), but I think this will only be a temporary event. You simply can’t dismiss a company that’s posting remarkable earnings (at least for a time period longer than a profit-taking sell-off) and that’s why I’d like to stand pat with our current positions.

After some opening-session weakness, shares of BG and ICE appear to be back on track. Therefore, continue to hold your BG May 125 Calls (BG EE) and your ICE May 165 Calls (IHH EM) into next week. Shares of MON, for example, are up over $5.00 today, and a similar move could happen anytime on both BG and ICE. And in that same spirit, it looks like ABX June 42.5 Calls (ABX FV) is hammering out a near-term support level, so I’d like to hold all three positions into next week.

ABX

Unless something urgent comes out later in today’s session, we’ll stand pat with our ledger going into next week. But until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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