One Oil Play & One Super-Leveraged Financial

Add SU and FAS Calls

Oil tycoon T. Boone Pickens forecasted that the price of oil will rise to $75 a barrel by the end of the year. He expects demand will surpass supply by 2011 and the price of oil will once again jump.

“I say $60 before it drops below $40.”

- T. Boone Pickens, CNBC Interview, Thursday March 5^th 2009

PLAY: Buy the SU September 25 Calls (SU IE) at market, good for the day. Place a protective stop limit at $2.40 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).

PLAY: Buy the FAS January 2011 3 Calls (OGF AC) at or under $4.00, good for the week. Place a protective stop limit at $1.50 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).

Dear Bottarelli Research Member,

In today’s alert, we’re going to capitalize on two powerful opportunities. The first opportunity comes in the form of oil prices, while the second comes within the financial sector. As you’ll see, both plays offer you a remarkable risk versus reward scenario. Using the potent combination of leverage and time, entering into these two LEAPS positions today could offer you phenomenal returns over the next 6 to 12 months. So on that note, let’s begin!

Your first LEAPS play comes in the form of Suncor Energy (SU – NYSE).SU is based in Canada, and they operate four segments: Oil Sands, Natural Gas, Energy Marketing, and Refining. A brief description of each segment is outlined below…

• Oil Sands: This segment recovers bitumen, primarily through oil sands mining, and upgrades it into refinery feedstock, diesel fuel, and light sweet crude oil.
• Natural Gas: This segment explores, acquires, develops, and produces natural gas and natural gas liquids from reserves in western Alberta and northeastern British Columbia.
• Energy Marketing: This segment refines crude oil into a range of petroleum, petrochemical, and biofuel products. It also offers gasoline, diesel, jet fuels, petrochemicals, and heating fuels.
• Refining: This segment refines and markets jet fuels, diesel, gasoline, and asphalt. They also transport crude oil through pipelines in Wyoming and Colorado.

Now, in my opinion, there are three upcoming triggers that could push shares of SU higher. The first trigger is China. You see, over the last week, not much attention has been give to what China has been doing with their $2 trillion in cash reserves. In my view, this is a gross oversight that we can capitalize on immediately. You see, China is now diversifying out of U.S. Treasuries. In fact, China’s Prime Minister Wen Jiabao expressed concern on Friday over their exposure to Treasuries, saying that he has “some worries” about their position. In exchange, they’re buying up oil and gold. And it’s easy to understand why. Consider this…

The United States currently consumes 25 barrels of oil per capita. Japan consumes 16 barrels of oil per capita, and Korea consumes 15. It may shock you, but China only consumes 2 barrels of oil per capita. India consumes even less at 0.90!

Since China and India have over 1 billion people, it’s easy to forecast that their oil consumption will rapidly expand. In fact, using the United States as a guide, China is nowhere near its peak oil consumption. You better believe that the Chinese know this, and that’s why they’re taking advantage of today’s reduced oil prices to acquire as much inventory as they possibly can. They already approved a $10 billion loan to Brazil’s Petrobras (PBR – NYSE) in exchange for a reliable supply of oil. They also gave $25 billion to Rosneft (the Russian oil company that now owns the assets of defunct Yukos) in an effort to secure oil from the east. With China buying up as much oil supply as they can, you better believe that the quote from T. Boone Pickens (above) is right on the money: Oil prices are soon headed back up to $60.00, perhaps even higher.

That’s why adding SU now is so powerful. Since Suncor is highly leveraged to the price of oil, rising prices will push SU’s share price higher. As you can see from the chart below, SU fell from $75.00 in the summer of 2008 to about $15.00 by the end of 2008. But thus far in 2009, they’ve been quietly inching higher. This tells me that SU has certainly bottomed out — but Wall Street has yet to catch on.

Based on their operations, Suncor needs oil prices to hit $49 a barrel to break even. With oil prices currently around $45.00, SU is priced as if they’ll be underwater for the remainder of their existence. But in my view, this offers us a really nice LEAPS entry opportunity. If you believe that oil prices will soon recover, then buying SU at today’s levels could be one of the best plays you make in all of 2009.And remember, this is only the first of three upside triggers!

Upside trigger number two comes from the Obama administration, and their new-found efforts to further develop oil relationships with Canada.

According to the Energy Information Administration, Canada supplies nearly 50% more oil to the United States than does Saudi Arabia. To me, this was a shocking statistic– and you better believe that President Obama is eager to widen this gap between Canada and Saudi Arabia even more.

That’s why Secretary of State Hillary Clinton, during her senate confirmation hearing, said the following: “In our efforts to return to economic growth here in the United States, we have an especially critical need to work more closely with Canada, our largest trading partner, and Mexico, our third-largest. Canada and Mexico are also our biggest suppliers of imported energy.”

It’s hard to believe, but Canada’s oil reserves are second only to those of Saudi Arabia. And in the eyes of our current administration, Canada represents the best way for America to wean itself off Middle Eastern oil. To support this platform, President Obama will go to Canada on his first official foreign visit. This trip could offer the upside trigger that pushes shares of SU higher.

And remember, relying more heavily on Canada for oil isn’t a far-fetched idea. Oil sands from Alberta, for example, already export 500,000 barrels of secure oil to the United States every day. SU represents 220,000 out of these 500,000 barrels.By 2012, SU expects to double this output to 550,000 barrels per day, which should be music to President Obama’s ears.And if that weren’t enough, SU also operates four wind farms in Ontario, Alberta, and Saskatchewan. They also run the largest ethanol facility north of the Unites States. Both of these green initiatives should make their case even stronger.

And finally, the third upside trigger revolves around rumors that Exxon Mobil (XOM – NYSE) might use their extensive cash position to acquire SU outright. If there is any truth to this rumor, then you better believe that SU is in for some powerful upside moves –similar to what we just enjoyed with shares of Genentech! Add it all up, and I’d like everyone to get upside exposure to Suncor Energy now. Here’s the play…

PLAY: Buy the SU September 25 Calls (SU IE) at market, good for the day. Place a protective stop limit at $2.40 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).

Today’s second play is a bit more speculative, and it comes in the form of the Direxion Financial Bull 3X Shares (FAS – NYSE).FAS isn’t widely known to many investors, but it’s a powerful new investment vehicle that moves at a rate of three times the daily performance of the Russell 1000 Financial Services Index. In other words, FAS gives you 3-to-1 leverage in the financial sector, and it’s comprised of the following companies:

• JP Morgan Chase (JPM – NYSE)
• Wells Fargo (WFC – NYSE)
• Bank of America (BAC – NYSE)
• Goldman Sachs (GS – NYSE)
• Bank of NY Mellon (BK – NYSE)
• US Bancorp (USB – NYSE)
• Travelers (TRV – NYSE)
• Morgan Stanley (MS – NYSE)
• Visa (V – NYSE)

This ETF was just launched in November of 2008, and it’s currently down 85% year-to-date. But recently, it has moved up substantially from its near-term bottom. In fact, over the last week, FAS has gained over 50%. With such powerful leverage, the play here is simple. We’ll use LEAPS to go out until January of 2011, and we’ll get positioned to profit off an eventual financial recovery.

If and when this recovery happens, the 3x leverage offered by the FAS could hand us one of the biggest winners of 2009. Heck, if last week can spark a 50% upside move and the FAS is still trading for under $5.00 a share, just imagine the powerful upside opportunity that we have going out until 2011. With a risk/reward scenario that’s hugely in our favor, let’s attempt to buy a financial bottom by adding FAS January 2011 call LEAPS now!

PLAY: Buy the FAS January 2011 3 Calls (OGF AC) at or under $4.00, good for the week. Place a protective stop limit at $1.50 and implement our scaled-selling technique as your position achieves gains of 50% (and greater).

TACTICAL NOTE: As I mentioned, FAS has moved aggressively higher this past week. Therefore, I would like to enter into this trade on any forthcoming price dips. As you’ll notice, I marked this trade as a buy “at or under $4.00, good for the week.” This $4.00 buy price is below the current prices that these calls are trading at right now. The reason I’m setting this price is simple. Next week, you’ll probably see a day next when the financial sector sells of and gives back some of its recent gains. That’s when I’d like you to enter the FAS January 2011 3 Calls. As a guidepost, plan to enter them on any financial sector weakness at or under $4.00 per contract.

UPDATES

SLW September 5 Calls (SLW IA), AUY January 7.5 Calls (WNZ AU), & GDX September 35 Calls (GBJ II): All three of our gold positions are looking good. We entered during a time when metal prices were pulling back, and this will reward us once gold and silver continue their upward move. Hold.

RTN August 40 Puts (RTN TH): On Thursday, we locked in the remainder of our profits, which officially closed this trade for a nice 66% gainer. Sold.

M&T Bank July 30 Puts (MTB SU): MTB has participated in the market rally, but it’s now re-testing resistance at the 50-day moving average. The next down-move should be coming soon. Hold.

NYSE Euronext January 2010 15 Calls (YVX AC): From a chart perspective, NYX has made a nice recovery — and it still has a lot of room to move. Hold.

FCX August 35 Calls (FCX HG): On Thursday, we also locked in profits on the remainder of our position, which resulted in another nice 98% gainer. It certainly appears like copper prices are rebounding. If so, FCX has a lot of room left to run. I’ll keep a close eye on this trade for another attractive entry point. But until then, congratulations on a powerful winner! Sold.

United States Oil Fund January 2010 30 Calls (KWW AD): If the USO can break through its 50-day moving average, then it will officially break out of its downward trend. This would be a powerful upside indicator going forward. Hold.

GERN January 2010 7.5 Calls (WNM AU): GERN had a nice snap-back this week, as President Obama officially overturned Bush’s policy on stem cell research. Hold.

VIX May 60 Calls (VIX EN): The market rally last week pushed the VIX lower as the level of investor fear quickly subsided. In my opinion, this reduced fear offers us a fantastic opportunity to add to our VIX May 60 calls. All it’ll take is one or two days of intense selling pressure and the VIX will move aggressively higher once again. I do no think that the market has bottomed out yet. Therefore, let’s lower our cost basis and add to our position now. Buy more.

PLAY: Buy more VIX May 60 Calls (VIX EN) at market, good for the day.

DNA March 80 Calls (DWN CP): On Thursday, DNA officially agreed to be acquired by Roche, who paid $95.00 per share for the remaining 44% of DNA stock that they didn’t already own. On this news, DNA popped up to $95.00, which allowed us to lock in another 62% gain. Nice trading! Sold.

TEVA January 2010 45 Calls (WTX AI): TEVA continues to look good. Last week’s move has the stock poised to break to new highs above the $46.00 level. Hold.

AK Steel January 2010 15 Calls (YDF AC) & Southern Peru Copper January 2010 25 Calls (YPV AE): It’s officially time to “roll forward.” This means we’ll sell our PCU and AKS positions at today’s levels, and then we’ll use the proceeds of these two sales to buy a new position with an extended expiration date. This gives us more time to witness a recovery. As I look at both copper and steel, it’s clear that copper is the stronger commodity. Therefore, PCU is a more powerful stock to play for a recovery going forward.

So here’s what we’ll do. First off, let’s sell our AK Steel January 2010 15 Calls (YDF AC) and your Southern Peru Copper January 2010 25 Calls (YPV AE) at market. This will result in a total sale price of around $2.30. Then, we’ll take this $2.30 and use it to purchase the PCU January 2011 15 Calls (XBW AC), which trade around $4.30 per contract. Then, as copper prices move up, PCU will recover, thus increasing the value of our new calls. And in the end, we’ll recoup the losses associated with AKS and PCU January 2010 plays by using the longer-dated PCU January 2011 calls. This puts us in the best position to ride a copper recovery going into 2011.

“ROLL” PLAY: Sell your AK Steel January 2010 15 Calls (YDF AC) and your Southern Peru Copper January 2010 25 Calls (YPV AE) at market, good for the day. Then, buy the PCU January 2011 15 Calls (XBW AC) at market, good for the day.

Yellow Roadway January 2011 2.5 Calls (VYX AZ): The entire transportation sector has gotten decimated recently, and no stock has felt the pain more than YRCW. In many respects, that’s why we attempted to bottom-feed when we added our January 2011 calls. Last week, YRCW put in a strong recovery, and a bounce above the 50-day moving average could help the stock officially break out of its recent down trend. Let’s continue to maintain your calls for this pending breakout move. Hold.

Sincerely,