Market Commentary (From Aegean's Weekly Report)

SUMMARY:

(5-29-06) On Wednesday of last week (see daily report) we pointed out that the major indices had formed the type price pattern which  3 out of 4 times   results into a sharp rally within 1-2 trading days. Between Thursday and Friday the SP rallied 35 points (2.8%) from its lows,  the Dow rallied 250 points (2.3%) from its lows, and NASDAQ rallied  75 points (3.5%) from its lows. The obvious question in everybody's mind is whether  last Thursday the indices  put in an intermediate term low, and they are on their way to new highs. Everything is possible, however, in this business we base our decisions not upon what is possible, but upon what is most probable. "V" bottoms are quite rare, 80% of the time the markets  -even if they do not violate the lows for the move- go thru a "bottoming process" which involves  "backing and filling"  and  also time. For example,  take  a  look  below at the chart  of the OEX , with the OEX/VXO ratio (relative volatility) and notice the  red circled areas, we are confident you can see the point.  So, although the advance may  continue for another two-three trading days, and it may carry up to resistance (see table below) the odds favor  a reversal  between current levels and resistance, and a re-test of last week's lows. Therefore, going into next week we will be looking for signs of exhaustion and for a negative price reversal in the zone  between Friday's closing  levels  and resistance,  combined with  a downside reversal by the McClellan Oscillators in the  +20/+30 zone. If somehow the indices manage to beat the odds and they  do not reverse at resistance but they accelerate to the upside, then in all likelihood we are dealing with  a "V" type  bottom, in that case, we will revise our expectations upwards because the major indices will be re-testing their most recent highs within the next 7-10 trading days.

Since we are expecting volatility  for the major indices going forward to remain above average  -in both directions- we are focusing on stocks  that over the next 2-3 weeks not only they  also have the ability to move in either direction, but also, they can be reasonably expected to experience extreme  volatility, due both to their high beta, and to their own special situation.

PLEASE NOTE: WE HAVE POSTED THE  COMPLETE PERFORMANCE RECORDS FOR 2005. CLICK ON PERFORMANCE   TO REVIEW THEM.

Trade #1

Company: Blue Coat Systems. Symbol: BCSI

Suggested Trade: Long: June15 calls/June17.5 calls

Short: Common Stock

Special Conditions/Other: NO

Comments:

BCSI  has been  acting quite bearish by gapping down on a fairly frequent basis, and at the same time,  the chart has the appearance of a double top. If the double top was to come to conclusion, the downside targets can be anywhere from 10, all the way down  to 5. On the other hand, if somehow it manages to snatch victory from the jaws of defeat, and it  reverses to the upside, it can be expected to rally  -at least- up to  20, and perhaps to as high as 25. The stock  closed on Friday at 15.41, thus, there is the potential  of a 30%-60% move.

Trading Strategy:

 A) We will buy to open 20 of the June17.5 calls (symbol: IYUFW)  

 B) We will buy to open 10 of the June15 calls (symbol: IYUFC)  

 C) We will sell short 1000 shares of BCSI at the limit price of 15.

P/L Analysis Powered By OptionVue:

*SEE TRADE UPDATE AT THE BOTTOM OF THE PAGE

Please note: The recommended minimum starting capital is $50,000.00.

Trade #2

Company: Synaptics. Symbol:  SYNA

Suggested Trade: Long: June25 calls/June25  puts

Special Conditions/Other: NO

Comments:

SYNA  is coiling within a triangle (see the two red lines) a bullish break-out will set upside targets at 27.5, at 32.5, and  at 37.5. On the other hand, a bearish break-down will set downside targets at 21, and at 15. The stock closed on Friday at 24.62, thus, there is the potential of a 12% to 40% move.

Trading Strategy:

We will buy to open 10 of the June25 calls (symbol: OYGFE)  and we will buy to open 8 of the June25 puts (symbol: OYGRE)

P/L Analysis Powered By OptionVue:

*SEE TRADE UPDATE AT THE BOTTOM OF THE PAGE

Please note: The recommended minimum starting capital is $50,000.00.

Trade #3

Company: Thor Industries. Symbol:  THO

Suggested Trade: Long: June50 calls/June50 puts

Special Conditions/Other: NO

Comments:

THO is near the bottom of its long-term rising channel.  It can test support at 42-40, or it can test resistance at 58-60, in either case, the magnitude of the move will be nearly 20%, and if the stock  breaks either support, or, resistance,  the magnitude of the move can be as much as 30%-40%.

Trading Strategy:

We will buy to open 6 of the June50 calls (symbol: THOFJ)  and we will buy to open 5 of the June50 puts (symbol: THORJ)

P/L Analysis Powered By OptionVue:

*SEE TRADE UPDATE AT THE BOTTOM OF THE PAGE

Please note: The recommended minimum starting capital is $50,000.00.

Trade #4

Company: Palm Inc. Symbol: PALM

Suggested Trade: Long: Common stock/June17.5 puts

Special Conditions/Other: NO

Comments:

PALM is at channel support, if it breaks down it will set-off downside targets  at 12.5, at 10, at 7.5, and at 5. If support holds, and it turns around, it can rally up to 23.5, 27.5, and even up to 35. The stock closed on Friday at 17.62, thus, there is the potential of a 25% to 65% move.

Trading Strategy:

We will buy to open 20 of the June17.50 puts (symbol: UPYRW)  and we will buy 1000 shares of PALM at the limit price of 17.

P/L Analysis Powered By OptionVue:

*SEE TRADE UPDATE AT THE BOTTOM OF THE PAGE

Please note: The recommended minimum starting capital is $50,000.00.

Good trading to all.
Ike Iossif, President C.I.O Aegean Capital Group, Inc.

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