A pause that refreshes,with the COTW trades. Best Stan Moore

Fellow Traders,

Doug Kass of Seabreeze Partners and TheStreet.com and is a short-selling specialist.  I’ve mentioned him numerous times in the Chat Room and in print before.  Doug has now turned vocally bullish right at the March low, using the '38 experience as his guide.  Doug points out that the first leg of the '38 lift lasted 12 trading days and traveled 19%, quite like the recent move. Then there was a 60-day consolidation that corrected half of that gain, followed by another 30% rise over six weeks. Next comes another rest and a final upward thrust.  This scenario is quite probable.

We have an early look at 1st quarter GDP coming out soon.  The quarter could be down over 7%, while the Friday jobs number could be down over 700,000 with unemployment hitting 8.5 or higher.  Furthermore, first quarter earnings start coming out soon.  Earning will not make for pleasant reading.  Seasonal strength turns down after April 30^th, another reason to button-up some profits.

How the market absorbs this news will tell us much about this rally’s character.  If the market can still move higher we just might begin in a true bull run much like Doug Kass outlined above.  Let's hope the market won't get too far ahead of a modest recovery in the economy.  If you are not a Chat Room subscriber, watch the Intraday Charts and for any special Email Alerts.

After Hatteras (HTS) retraced to $21.40 on Monday, we got a great buy entry last week when price went under my $22.00 buy area.  On Tuesday HTS declared a $1.05 dividend on a much larger number of shares after its stock offering.  On Friday, Deutsche Bank issued a buy recommendation pushing the stock over $24.60!  The Deutsche thought HTS should trade between a 16-19% yield or $22-27.00.  Over $24.00 a NET trader could have sold May $25 strike calls as high as $0.75 further increasing overall return.  HTS goes ex-dividend Monday.  I believe HTS remains attractive for total-return accounts.  In the short term, continue to buy HTS under $22.00 and/or sell puts while selling calls over $25.

Annaly (NLY) declared a $0.50 dividend, slightly lower than some expected and sold off making our call sale rather rewarding.  We continue to print money selling puts on declines and calls on rallies.

Huntsman (HUN) rose above $3.50 on court speculation regarding depositions, timing, etc.  I continue to believe the HUN trades much higher into a June 8th trial start date.

Freeport (FCX) has doubled from its lows and I recommend selling further out ITM or OTM calls aggressively.

Broadly, I see nothing wrong selling calls against our stock positions for downside protection.  I continue to believe rising energy prices will signal a worldwide recovery next year.  We are not yet looking for any play from the inflation play which I see much later in 2010-12 time frame.  I can see oil in the $70+ area sometime next year.