Ratchet Up

Three New Pre-Announcement Plays

PLAY: Buy the CMED June 30 Calls (QCY FF) at or under $5.00, good for the day. Place a protective stop loss at $2.50.

PLAY: Buy the ESV May 50 Calls (ESV EJ) at or under $3.70, good for the day. Place a stop loss at $2.00.

PLAY: Buy the PTEN May 30 Calls (NZQ EF) at or under $1.65, good for the day. Place a stop loss at $0.80.

Dear Bottarelli Research Member,

I’m back from my 3-day trip and ready to bang out some serious trading action. The only thing stopping me from recommending a full arsenal of new trades is an email written by Charter Member Brian S, who says, “With the FOMC announcement on 3/28/06 at about 1315 CT, will you issue any trade recommendations before 1315 CT, or hold them until after the announcement? I guess I am really asking if impending FED action affects your trades?…

Without question, the Fed effects our trading. Back in the Greenspan days, the market experienced massive mood swings as traders tried to decipher if simple words like “seem” and “could” meant further hikes. As I quickly learned, taking positions during this action was nothing short of flipping a coin. Now with Mr. Bernanke at the helm, nobody knows what to expect from his meetings — but they do appear to present a much calmer effect on the market than Greenspan.

When it comes to the more volatile positions, it’s better if we let the Fed announce and then get fully positioned once the dust has settled. But in terms of the safer stocks, there’s a handful of plays that represent good positions to enter regardless of what comes out of the Fed. So as we await today’s meeting, I’d like to offer you three pre-announcement plays that you can enter right now.

The first two plays have popped up in the oil exploration and service sectors. The companies are Patterson-UTI Energy (PTEN – NASDAQ) and Ensco International (ESV – NYSE). I like the idea of using oil plays as a hedge against a weak market. After all, oil-related stocks have flexed their muscle during times of both strength and weakness — offering us protection in any market environment. That’s why I’m comfortable entering these plays now.

According to a recent Forbes article titled “Find Energy at Home,” Washington will soon encourage the approval and construction of new petroleum refineries — a move that would open the door for more offshore drilling areas. That puts companies like PTEN and ESV in perfect position to experience continued upside rallies.

ESV is an offshore driller that’s experiencing record sales numbers. They just upped their expected earning per share by 5.1%, which effectively increased their estimated 2006 earnings per share growth to a whopping 160%. But even with all the growth, the company still supports a P/E ratio of 10, making the stock a great value at current levels. Not only that, but on Thursday March 16th, Ensco executives announced a stock buy-back worth $500 million. (Apparently they agree that the stock is a steal at current levels.)

PLAY: Buy the ESV May 50 Calls (ESV EJ) at or under $3.70, good for the day. Current bid/ask spread is $3.30 to $3.50. We’ll target a move up to $56.00, which could make these calls worth around $6.90. Place a stop loss at $2.00.

Also looking like it’s about to make an upside push is PTEN. The company owns 361 land-based drilling rigs — and they offer their services to independent oil and natural gas exploration in North America — primarily southern and western Texas, southeast New Mexico, Oklahoma, and the Gulf of Mexico. I’d like to get a little more aggressive on this play and issue an out-of-the-money call. These calls increase at the highest possible rate as stocks move in your forecasted direction.

PLAY: Buy the PTEN May 30 Calls (NZQ EF) at or under $1.65, good for the day. Current bid/ask spread is $1.45 to $1.55. We’ll target a move up to $33.00, which could make these calls worth around $3.80. Place a stop loss at $0.80.

Thirdly, the most risky play is a company called China Medical Technologies (CMED – NASDAQ), which develops products that treat cancers and benign tumors in the People’s Republic of China. As I’m sure you know, China’s exploding population is changing our global landscape — and this massive demographic means good things for CMED’s noninvasive ultrasound therapy. Using high-end technology that treats solid tumors in the liver, breast, and kidneys, CMED is positioned for incredible growth. The company also uses a device called the ECLIA analyzer to detect thyroid disorders, diabetes, and reproduction and growth disorders. Check out the chart:

PLAY: Buy the CMED June 30 Calls (QCY FF) at or under $5.00, good for the day. Current bid/ask spread is $4.60 to $4.80. We’ll target a move up to $35.00, which could make these calls worth around $7.30. Place a protective stop loss at $2.50.

Lock and load!

Sincerely,