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Caterpillar - CAT - close: 92.78 change: +0.72 stop: 90.50

Company Description:
For more than 75 years, Caterpillar Inc. has been building the world's infrastructure and, in partnership with its worldwide dealer network, is driving positive and sustainable change on every continent. With 2004 sales and revenues of $30.25 billion, Caterpillar is a technology leader and the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines and industrial gas turbines. (source: company website)

Why We Like It:
We like CAT because the bounce has been pretty convincing. Earnings weren't so hot but traders bought the dip in late January just as CAT touched its 100-dma, which just happened to coincide with the 38.2 percent Fibonacci retracement level of its August to December rally. Now after more than a week of consolidating sideways between $90 and $93 the stock is challenging resistance at its 50-dma. We want to use a TRIGGER above minor resistance at $94.00 to catch the next leg higher. Our strategy will be to buy calls as CAT trades at $94.05. Our short-term target will be the $99-100 resistance levels.

Suggested Options:
We are suggesting the March and May calls.

BUY CALL MAR 90 CAT-CR OI=2079 current ask $4.30
BUY CALL MAR 95 CAT-CS OI=2138 current ask $1.50

BUY CALL MAY 90 CAT-ER OI=8315 current ask $5.80
BUY CALL MAY 95 CAT-ES OI=5978 current ask $3.20


Picked on February xx at $ xx.xx <-- see TRIGGER
Change since picked: + 0.00
Earnings Date 01/27/05 (confirmed)
Average Daily Volume = 2.4 million


KMRT 103.02 110.00-115.00 98.50 *new playKmart Holding - KMRT - close: 103.02 chg: +3.30 stop: 98.50

Company Description:
Kmart Holding Corporation and its subsidiaries (together, "Kmart") is a mass merchandising company that offers customers quality products through a portfolio of exclusive brands that include Thalia Sodi, Jaclyn Smith, Joe Boxer, Kathy Ireland, Martha Stewart Everyday, Route 66 and Sesame Street. (source: company website)

Why We Like It:
It appears that the momentum traders are back in KMRT. Shares broke down sharply in January but the selling abruptly stopped once KMRT neared the 61.8 percent Fibonacci retracement of its August to November rally. The recent breakout back over the $100 level is very bullish and after four days of consolidating that breakout traders are back to buying the dip. It's probably no coincidence that Friday's bounce is off the old trendline of lower highs (see chart). KMRT looks poised to run again. The P&F chart is very bullish with a $143 target. We are only targeting a short-term move to the $110-115 range.

Suggested Options:
We are suggesting the March and we plan to exit before KMRT's earnings report mid-month.

BUY CALL MAR 95 KTQ-CS OI= 2519 current ask $9.80
BUY CALL MAR 100 KTQ-CT OI=10835 current ask $6.20
BUY CALL MAR 105 KTQ-CA OI=14143 current ask $3.50
BUY CALL MAR 110 KTQ-CB OI= 6459 current ask $1.75


Picked on February 13 at $103.02
Change since picked: + 0.00
Earnings Date 03/16/05 (unconfirmed)
Average Daily Volume = 2.5 million

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