Morning Update

Maintain All Positions

By Bryan Bottarelli
Wednesday, April 29, 2009 10:15 AM EDT
Wed, 29 Apr 2009 14:15:00 GMT

Dear Bottarelli Research Member,

Good morning. In yesterday’s alert, I mentioned that Citigroup and Bank of America essentially failed their stress tests, which is why government regulators sheepishly released a statement indicating that they should raise more capital.

This capital request comes after Citigroup released a statement earlier this month saying that their “regulatory capital base is strong.” Bank of America released a similar statement saying that the firm “absolutely” doesn’t need more capital. Hmmm.

Today, Bloomberg is reporting that at least 6 of the 19 largest U.S. banks require additional capital (citing individuals who have already been briefed on the matter). In other words, the number of banks who have failed the stress test is growing. Of course, this data is being released in a very precise manner. And the markets, which appear blind to the dire position of our banking institutions, are responding with an opening-session gain of 100 points. Chart below:

INDU

It all feels quite artificial to me, which is why I’d like to maintain our ABX June 30 Calls (ABX FF), FAZ June 8 Calls (FAY FH), SRS May 32 Calls (SAK EZ), and SMH May 22 Puts (SMH QJ). Despite the recent rally, our SMH, ABX, and FAZ plays have all maintained levels right around our entry prices. The only position that’s drifting lower is the SRS play, but based on how it trades, we could see a recovery in a day or two. Therefore, I’d like to do our best to maintain all four of these plays going forward.

Remember, SRS was nearly $300 back in November. And heck, it traded for $100 back in March. With current levels around $24.60, any weakness in the real estate markets could push it aggressively higher in the blink of any eye. Hold.

And now onto the circus that is Dendreon (DNDN – NASDAQ)…

As you know, the stock rallied in yesterday’s early action, which allowed us to lock in a nice 44% profit on half of our strangle position. Then, leading up to the announcement of their news, the stock was halted, just before a strange price tick sent the shares tumbling. You can see this tick in the chart below. The stock remained halted all day long — even after DNDN reported fantastic news about their prostate cancer drug Provenge. This should be all the FDA needs to approve Provenge. And today, shares have recovered all of yesterday’s bogus tick and traded as high as $27.40. What a week!

DNDN

So now, the question remains: What do we do with the remaining half of our strangle position? Right now, I’d like to hold onto it. I have a feeling that DNDN could break $30.00 this week, and this could push our May 30 calls into the money. So for now, let’s maintain these calls and see if the momentum in DNDN can keep pushing it higher. I’ve heard some analysts calling for price targets of $45.00 per share, so the potential is certainly there. Hold for more upside.

As always, I’ll continue to update you on any new developments throughout the trading session. But until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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