1:50pm (EST) 

When we left for break on Friday, we knew heading into the weekend the market would be vulnerable to any setbacks from this weekend’s summit between the European Union (EU) leaders.  However, the good news is that while everyone knew nothing concrete would come from the meeting by this morning, the markets are hoping for some type of resolution to Europe’s debt crisis by mid-week.  When we learned of the possible backup meeting, we knew there was a good chance the rally, especially when it went out on Friday near its high, would continue.

Although economic news has been light, the indexes are moving higher after Caterpillar (CAT, $92.44, up $5.03) beat Wall Street’s estimates while M&A activity seems to be heating up.  We mentioned a few weeks ago that 3Q earnings could be a catalyst to take the market higher and that lower stock prices could mean more takeover targets and those catalysts are playing out.

Caterpillar reported a profit of $1.14 billion, or $1.71 a share, versus $792 million, or $1.22 a share, in the year-earlier period.  Revenue came in at $15.7 billion.  The company would have earned $1.93 a share but the results excluded its $7.6 billion acquisition of Bucyrus International.  The suit-and-ties were looking for a profit of $1.63 a share on $14.8 billion in sales. 

Even better, Caterpillar also said it now expects 2011 earnings of $6.75 a share on revenue of $58 billion, up from a previously forecast of $6.25-$6.75 a share on revenue of $56-$58 billion. 

We had the Caterpillar (CAT, $92.74, up $5.35) November 90 calls (CAT111119C00090000, $5.05, up $2.05) on our Watch List Friday morning at $1.80 but they had gapped up to $2.40 at the open so we didn’t get in.  Although we didn’t feel like chasing, some of our subscribers did.

Elsewhere, Oracle (ORCL, $32.75, up $0.63) has agreed to acquire RightNow Technologies (RNOW, $42.90, up $6.94) for $43 a share while Mattel (MAT, $28.43, up $0.74) plans to scoop up privately-held Hit Entertainment.  Also, JM Smucker (SJM, $77.09, up $0.57) decided it needed a coffee division and will buy a majority of Sara Lee’s (SLE, $17.74, down $0.03) North American unit.  

As we head to press, the Dow is up 102 points to 11,910 while the S&P 500 is higher by 15 points to 1,253.  The Nasdaq is surging 58 points to 2,695. 

We have 2 NEW TRADES today so we have to roll.  We also have another triple-digit winner on our hands as one of our current call option trades has hit a 112% return and we need to take action.  Subscribers, check the Members Area for the updates.