The relief rally was on today as the Dow zoomed 936 points as bulls rushed in to buy stocks that have been beaten down 50%-80% in just over a month. If you read the blog that I posted over the weekend, then you could tell how excited I was to go long the market. There were a ton of positions that could have been bought at the open this morning and it felt like I was going Christmas shopping on the Friday after Thanksgiving. That day is the biggest shopping day of the year as consumers rush to the malls at 4am to get the best deals. That is exactly what was happening at the opening bell this morning.

The Dow was up a quick 400 points right off the bat and its 11% gain was ithe biggest since the Great Depression. For the record, the Dow officially closed at 9,387. The “dead cat bounce”, “relief rally”, “oversold rally” or whatever you want to call it also pushed the S&P 500 and Nasdaq higher by 104 and 195 points, respectively. The S&P 500 closed at 1,003 while the Naz closed at 1,844.

But can the rally be trusted? The key point I made over the weekend was that you should only be looking out 6-12 months and it is hard to say if this rally will hold. However, today was our shopping day and here is what I had on my Christmas list from the weekend for my Lottery Play Portfolio.

Microsoft (MSFT, $25.50, up $4.00). If you’ve been reading the blog then you know how much I’ve mentioned this stock. This company has over $20 billion in cash and no sub-prime exposure. Share buybacks, dividend distributions, and acquisitions have eaten away at the company’s coffers - two years ago they had nearly $60 billion but the company’s products still generate about $1 billion a month. The stock fell to a low of $20.65 Friday. This morning, the April 25 calls (MSQDE, $3.30, up $1.30) opened at $2.35 and closed 65% higher for the day. Even at $2.35, you still got a 40% gain if you bought at the open. The April calls are over 6-months out and expire on April 17, 2009. If these calls get back to this level, don’t hesitate to jump on the. If you got in today with a half or full position then you could set 25% stops in case the stock retreats.

Google (GOOG, $381.02, up $49.02) turned out to be a “Blue-Light” special as it rallied 15%. This stock was on sale at half-off from its 52-week high of nearly $750 and the March 500 calls ($19.40, up $6.20) opened at $11.50 and briefly traded over $20. Google still has earnings so if you got in early, set stops at $15 or so.

Yahoo (YHOO, $13.49, up $1.20) fell below $12 last Friday and although it didn’t get the big pop Microsoft and Google did, it still managed a 10% gain. I didn’t go too far out on Yahoo call options because I still think the company is a mess (not taking the $33 a share from Microsoft still haunts shareholders). Remember though, we are not trading on fundamentals for some of these plays, just on what appears to be cheap. The January 17.50 calls (YHQAW, $1.33, up $0.06) were the most active but I don’t expect much from this one. In fact, set stops 20% below your entry price instead of the usual 50%.

Johnson & Johnson (JNJ, $62.68, up $6.83) was a no-brainer and a really safe play. The stock was up over 12% and I had mentioned the big drop after hitting a 52-week high a month ago. The November 60 calls (JNJKL, $4.70, up $1.70) opened at $3.30 as volume came in at 4x open interest. I love this stock for the short and long-term which is why the April 70 calls (JNJDN, $2.00, up $0.50) looked like a down-right steal at $1.50 this morning. If you missed today’s jump you could start building half-positions even at these levels.

I didn’t like General Motors (GM, $6.51, up $1.62) and still don’t although the 33% rally today was very impressive. We rode Ford and GM all the way down to these levels a few months ago and while there may or may not be bankruptcy in their future, I just think there are better trades out there. If you are a die-hard bull, the GM 2010 January 5 calls (WGMAA, $3.65, up $0.50) saw a lot of action as nearly 5,000 contracts traded. The 7.50’s (WGMAR, $3.15, up $0.65) weren’t nearly as popular, trading only 200 contracts.

Arch Coal (ACI, $27.32, up $5.28). The November 25 calls (ACIKE, $5.20, up $1.60) opened at $4.50.

Massey Energy (MEE, $26.47, up $5.74). The November 25 calls (MEEJE, $1.85, up $0.75) opened at $1.00.

Patriot Coal (PCX, $19.50, up $4.90) also made a nice comeback. The November 20 calls (PCXKD, $3.60, up $1.40) opened at $2.40.

There were a couple of other energy stocks I mentioned but I didn’t want to go too heavy on the sector.

Morgan Stanley ($18.10, up $8.42) was a huge story today after the company nearly went bankrupt last week. The investment bank went through a zany week of trading as many on Wall Street pondered its future. Mitsubishi Financial Group of Japan was the knight in shining armor for Morgan as they made a $9 billion investment in the company. The October 15 calls (MSJC, $3.80, up $2.61) were up 220% today.

Goldman Sachs (GS, $111.00, up $22.20) has made up 40 points since hiting a low of $74 last Friday. What a steal it was below $100 or even $80 for that matter. Remember, Buffett is in at $5 billion with another $5 billion waiting in the wings. The October 100 calls (GSJT, $15.50, up $10.00) opened at $6.95. An easy double as the day went on. If you bought at the open, set stops at $11.00. The January 125 calls (GSAE, $11.60, up $4.35) didn’t have the banner day as the October calls did but still were up 60% for the day.

There were a slew of other good trades, too many more for me to list but you got the idea. Keep an eye on some of the calls I have mentioned. They may get cheaper and they may not. It’s too early to call this a rebound and there is no way of predicting where we are headed over the next few days. Remember, earnings are on tap and they will certainly sway the market.

Rick Rouse
Rick@OptionsMentoring.com

Reliance Steel & Aluminum (RS, $75.10, up $1.62) is trading higher after boosting its 2Q guidance by 35% citing “larger and faster-than-expected increases in carbon steel product prices.” The company raised its earnings forecast to $2.00-$2.10 a share, way up from its previous forecast of $1.50-$1.60. Wall Street was expecting a profit of $1.64.

Here’s another stock that has Wall Street guessing. If you’ll notice, the Street was expecting Reliance to come in below expectations and over the past few weeks analysts have been downgrading the stock. One research firm recently lowered its rating on the stock from “Outperform” to “Sector Perform” with a $65 price target. Wrong. The stcok is at $75.

The company is scheduled to report earnings on 7/17 and is capitalizing on price increases while at the same time, expanding gross margins. Those two combinations will certainly help any company’s bottom line. Reliance has also been busy on the acquisition front. The company has agreed to buy PNA Group Holding, a steel service center group owned by Platinum Equity, for $1 billion.

The stock hit a high of $78.31 right out of the gate but as you can see the news is kinda wearing off. Before today’s news, Reliance had traded higher 6-out-of-the-last-7 sessions. The July 75 calls (4.40, up $1.24) traded as high as $5.80 when the market opened but have since faded as well. That’s the risk of buying options at the open and buying options with no limit price. The first 30 minutes of trading can be overblown and treacherous and option traders who bought at the high have lost 20% right off the bat.

The revised forecast was certainly good news for those of you who noticed Reliance’s uptrend before the announcement. The stock’s move from $66 to $76 has gone unnoticed by many on Wall Street but today’s news has woke them up.

Rick Rouse
Rick@OptionsMentoring.com

I profiled Chipotle Mexican Grill’s (CMG, $95.47, down $3.22) earnings about three weeks ago after the company beat Wall Street’s expectations by four cents a share. However, the stock fell 10% that day and closed right around $100.

The breakdown was significant and technically speaking, the stock broke through its 20 and 50-day moving averages. Though moving averages aren’t a tell-all for making a trade, these breakdowns usually attract the attention of investors who are bearish.

The May 105 puts (CMGQA, $9.60, up $3.70) were profiled at $4.50 when I noticed the put option activity building going into Chipotle’s earnings announcement. Sure enough it was a good sign of things to come for the bears as the puts more than doubled by expiration.

Chipotle even said it was going to be tougher for them to hold gross profits at current levels due to the continuing rise in food costs. Although some stores have increased prices with the introduction of the company’s naturally raised beef, management does not plan on a company-wide price increase at this point. That’s great for us but without higher prices, gross margins will get squeezed.

If you take another look at Chipotle’s chart you will see $90 as a key support level. If the stock falls below this level, momentum could take it to the lows $80’s where the next level of support lies. Some options traders may be seeing the same thing and with the May options expiring today, they may be rolling their profits into the June 95 puts (CMGRS, $4.98, up $1.08).

Rick Rouse
Rick@OptionsMentoring.com

It’s official, Carl Icahn confirmed he’s got a “team” in place for a proxy fight with Yahoo (YHOO, $26.98, down $0.18). It was revealed that Icahn acquired nearly 60 million shares of Yahoo stock over the past 10 days. Talk about a “Dream Team”, Icahn’s new board would include himself, Adam Dell (brother of Michael Dell) and Mark Cuban (famous sports owner of the Dallas Mavs).

In a letter to Yahoo, here is what Icahn wrote: “It is quite obvious that Microsoft’s bid of $33 per share is a superior alternative to Yahoo’s prospects on a standalone basis. I am perplexed by the board’s actions. It is irresponsible to hide behind management’s more than overly optimistic financial forecasts. It is unconscionable that you have not allowed your shareholders to choose to accept an offer that represented a 72% premium over Yahoo’s closing price of $19.18 on the day before the initial Microsoft offer.”

Good stuff no doubt but can you ride this upcoming rally in Yahoo? What it boils down to is if Yahoo will get bought out at $30 or higher. I can tell you this, Icahn isn’t going to keep his money locked up for long. No way. Yahoo’s annual shareholder meeting is set for July 3 so there you go.

The action on Yahoo’s June 27.50 calls (YHQFY, $1.20, down $0.32) is ridiculous. So far, 42,000 contracts have traded. I can see the logic with this one. Option traders are betting $120 to make $250. If Yahoo is at $30 by June 20 then they double their money.

The July 27.50 calls (YHQGY, $1.91, down $0.12) have traded 15,000 contracts and these don’t expire until July 18.

I’m not getting on a soap box and yelling that these are good bets, all I’m saying is that the crowd seems to be following Icahn once again.

Rick Rouse
Rick@OptionsMentoring.com

It looks like Energy Conversion Devices (ENER, $51.62, up $3.88) has turned things around after hitting another 52-week high today. The stock was at $35 before the company announced earnings last Thursday and closed that day $15 higher after reporting a profit for its third-quarter and offering strong fourth-quarter revenue guidance.

Energy Conversion Devices reported a profit of $7 million, or $0.17 a share versus a year-ago loss of $6.9 million, or $0.17 a share. Revenue increased to $70 million up from $27 million. Wall Street had expected a loss of $0.06 a share on revenue of $66.7 million.

I’ve mentioned First Solar (FSLR, $284.84, up $0.34) in the past and like First Solar, ECD’s solar panels do not use polysilicon so the company isn’t affected by the low polysilicon supplies. ECD’s panels are extremely lightweight and highly durable which has helped the company build a strong position in the marketplace since the panels don’t require any type of structural reinforcements. This reduces the costs and complexity of installation so customers can just pile the solar panels on their roof to generate electricity.

Hybrid Energy plays have been hot for quite some time and now that ECD has turned a profit their future is getting brighter by the quarter.

Rick Rouse
Rick@OptionsMentoring.com

Research in Motion (RIMM, $141.69, up $8.92) is having a stellar day, hitting an all-time high of $143 earlier in the session. The company unveiled its latest BlackBerry model dubbed, the Bold, which was its first major new model in over a year. The phone is expected to compete directly with Apple’s (AAPL, $188.16, up $4.71) iPhone.

RIMM’s Bold has twice the screen resolution of the company’s current Curve BlackBerry and dual-band Wi-Fi and GPS capabilities should be available from carriers this summer. The May call options have been active in RIMM. The May 140 calls (RULEH, $4.07, up $3.30) have traded over 30,000 contracts and are up 428%, and the May 145 calls (RULEI, $1.77, up $1.52) are up 600% as over 20,000 contracts have traded hands.

The announcement of the Bold came earlier than expected and on the heels of Apple’s news that its online stores in the U.S. and U.K. are sold out of the iPhone. Some stores run by Apple and AT&T (T, $39.11, up $0.52) may still have units available but it’s hit or miss.

The low availability of the iPhones could indicate that the release of a 3G iPhone is just around the corner. Apple has a conference that starts June 9 and we all know Steve Jobs likes to make a splash at such events. Apple sold 1.7 million iPhones in its last quarter and its goal is to sell 10 million iPhones by year-end. Many analysts believe they will easily beat that number.

The release of a new iPhone would help offset sales that Apple is losing now as people anxiously await its release. All three companies (Apple, AT&T, and RIMM) have positioned themselves ahead of the competition and now its up to the rest of them to play catch-up.

Rick Rouse
Rick@OptionsMentoring.com

After holding strong for much of the morning the market slowly gave in and drifted lower for the remainder of the day. The Nasdaq (2,438.49, down 44.82) and S&P 500 (1,392.57, down 25.69) both fell 1.8%. The Dow (12,814.35, down 206.48) lost 1.5% for the day but all three are failing to break through key resistance levels.

The S&P 500 will have to make a run past 1,425-1,450 and hold before we can seriously consider the April rally. The Nasdaq will need to test 2,600 and hold while the Dow will need to make a run at 13,500 or better to get me in the bulls camp.

The VIX (19.73, up 1.52) traded higher (remember the VIX increases as the market goes down) and tested 20 today. With first quarter earnings winding down, a weak dollar, and higher oil and food prices, I just don’t see any “good” catalysts to hang my hat on for an extended rally.

Although I could care less about market direction, I do like to follow the tug-of-war between the bulls and bears. However, some people follow market direction and tend to buy put options in a bear market and call options in a bull market. Knowing these things can help with your overall trading performance as you gain valuable knowledge on what signs the market is giving you.

Rick Rouse
Rick@OptionsMentoring.com

Blowout earnings from Transocean (RIG, $157.40, down $0.45) wasn’t enough to keep the stock from closing at a 52-week high but it didn’t stop the shares from making one. The stock hit an all-time high today reaching $162 before selling-off with the rest of the market. It was pretty much a given that the biggest offshore oil driller in the world would easily top Wall Street’s estimates but Transocean really knocked the cover off of the ball.

For the quarter, the company reported income of $1.2 billion, or $3.71 per share, on revenue of $3.1 billion versus income of $553 million, or $2.62 per share, on revenue of $1.3 billion, for 1Q07. Wall Street had expected earnings of $3.33 a share.

What was interesting was the action in the Transocean May options. Bets were being placed on the May 160 calls (RIGEL, $2.60, down $1.34) for the bulls while the 145 puts (RIGQI, $0.35, down $0.80) were active for the bears. With the May options expiring next Friday, the stock could be stuck between these two targets until expiration. However, there was heavy volume in the out-of-the-money August 170 calls (RIGHN, $8.20, up $0.60) and even the August 200 calls (RIGHW, $2.25, up $0.40) saw some action.

Rick Rouse
Rick@OptionsMentoring.com