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Portfolio Review

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A Good Time for a Holiday!

Stocks drifted higher ahead of the extended holiday weekend as investors overlooked higher oil prices and focused instead on favorable economic news. A number of reports were released during the past few days including data that showed rising personal incomes and better-than-expected consumer confidence. Analysts were encouraged by the market's ability to hold on to advances made in previous sessions and many believe the bullish trend will continue into the summer months. For the week, the Dow industrials gained 70 points to 10,542, while the NASDAQ closed 29 points higher at 2,075 and the S&P 500 index added 9 points to finish at 1,198.

Among the current OW Portfolio positions, all of the issues are trading as expected with only McDermott (NYSE:MDR) showing the slightest signs of bearish activity in the short-term. The issue closed down nearly 5% on Friday amid concerns the new legislation to create a $140 billion asbestos compensation fund could face trouble on the Senate floor. Although the Senate Judiciary Committee backed the bill aimed at eliminating asbestos lawsuits and creating a fund to be financed by companies facing asbestos suits and their insurers, three members of the Senate's Republican majority (who supported clearing the bill from committee) warned they would insist on changes before voting for it on the Senate floor. Sen. Arlen Specter, the Pennsylvania Republican who chairs the Judiciary Committee, noted that the bill "faces continued challenges" but he also said the measure would pass the Senate "with considerable support."

Obviously, the outcome of the legislation will likely determine the success of the MDR position but the discussion on the Senate floor may continue for some time before a final vote occurs. That branch of government is known for its relatively lengthy debates and virtually limitless amendments (often irrelevant to the legislation under consideration) so there is a chance the June expiration date will arrive long before additional negative news can affect the position. Until then, we will monitor the issue closely and watch for signs of additional selling pressure and a renewed downtrend. A move below recent technical support near $20 would be one of the first indications that a change in character has occurred.

Since the OW Portfolio is fully invested and there is only 17 days remaining until the June options expire, we are going to observe the Memorial Day holiday and forego any new recommendations. However, we will try to enhance your search for profitable option trades with some Supplemental Positions and readers who are interested in these plays can expect them to be posted prior to the opening bell for Tuesday's session.

OW Staff

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