SAIC, Inc. (SAI)
Update:  4/23/07

After a very drawn out a period of range trading, SAIC finally broke out to the upside on April 11, forming a complete impulse pattern off its low.  Market interest picked up in the stock after the release of its first quarterly earnings report earlier in the month.  Recall that the stock IPOed back in October, and the stock price and potential for the company in the defense space has started making it look more attractive.  SAIC has generated a decent backlog of government defense contracts, which has made investors who look for those things seemingly more comfortable with the stock.  As far as other sentiment is concerned, the stock reached a Put/Call ratio high of 6.00 before hitting bottom at 16.60.  Renewed investor interest has seen the ratio begin to drop significantly, although, it still stands at 0.88, and bullish sentiment is therefore still well above measures of excessiveness.  

Since the original model for SAI changed with its break below 17.00, I've revised its to consider more of a tradable ABC zigzag type recovery.  The first leg up off the low was an impulse pattern, which I've labeled Wave A, which achieved and intraday peak of 19.11 on April 17.  The evidence for now is that the subsequent Wave B likely bottomed when the stock hit 18.09 on April 20.  It is always possible, of course, for the Wave B pullback to extend, and their is support at 17.54.  The pullback has been corrective, in keeping with a Wave B style decline, which also argues for at least a 3-wave rally.  Consequently, we'd be looking to position for Wave C.  The more conservative outlook for the this trade is that it offers a couple of points of upside, and options are therefore recommended in order to take advantage of the leverage.  For example, if Wave C tends towards equivalence with Wave A, which is common, then a high could be made between 20.06 and 20.60.  There may also be a retest of the 21.10 high of October 30.  The most bullish take would be that a larger impulse pattern is forming, which may be the case if investor interest in the stock continues.  Under that scenario, the rally may instead develop as a third wave, it which case there would be further potential into the 22 area.  I'd suggest using a break above 18.85 for an entry, and setting a stop below 16.60, as any violation of this level invalidates the wave count.

I'm also updating the earlier option play, now that the suggested August  2007 $20 Call has lost some Delta.  You might then consider the November 2007 $20 Call (symbol SAIKD), which was selling for $1.05, with the Delta at 0.45.

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