Get Positioned

Open the Week With Three New Plays

By Bryan Bottarelli
Monday, May 01, 2006 10:36 AM EST
Mon, 1 May 2006 15:36:00 GMT

PLAY: Buy the SLB May 70 Calls (SLB EN) at or under $2.70, good for the day. Place a protective stop loss at $1.85.

PLAY: Buy the PCU May 100 Calls (PCU ET) at or under $3.60, good for the day. Place a protective stop loss at $2.80.

SPECULATIVE PLAY: Buy the ADM May 35 Calls (ADM EG) at or under $3.30, good for the day. Place a protective stop loss at $2.10.

Dear Bottarelli Research Member

This Sunday on Meet the Press, there was a rather interesting mix of panelists. First off, you had a very low-key James Cramer — mixed in with Democratic Senator Dick Durbin from Illinois and Republican Energy Secretary Sam Bodman. Amazingly, all three agreed on the benefits of ethanol. With everyone in agreement, I think it’s only a matter of time before we see a very significant policy addressing this new alternative fuel source. More on this below.But first, I’d like to get re-positioned to the upside in two major sectors that I laid out in last Friday’s alert: Oil and Metals.

The oil play comes in the form of Schlumberger (SLB – NYSE).As you can see by the chart, SLB proved to be incredibly resilient during the latest oil-retreat, which points to a move higher as prices stabilize and once again move higher. Today, the stock just hit a new 52-week high which now validates this thesis.

SLB

PLAY: Buy the SLB May 70 Calls (SLB EN) at or under $2.70, good for the day. Place a protective stop loss at $1.85.

The metals play comes in the form of Southern Copper (PCU – NYSE).As I said on Friday, you simply cannot find a more comprehensive metals play than PCU, as the company is involved in copper, molybdenum, zinc, silver, gold, and lead. As you can see by the chart, PCU has indeed busted through the $100 level, as I said it would on Friday, which means more upside is coming.

PCU

PLAY: Buy the PCU May 100 Call (PCU ET) at or under $3.60, good for the day. Place a protective stop loss at $2.80.

On the more speculative side, we have in interesting situation in our old friend Archer Daniels Midland (ADM – NYSE). Tomorrow morning, the company has their Q3 2006 earnings call where they’re expected to report earnings of $0.46, versus $0.30 a year ago.

As we’ve seen before, it’s anyone’s guess how the stock will react to an earnings announcement — and that’s why I’m calling this one a “speculative” play. But if you look at the chart, ADM is starting to once again move higher.

ADM

If you recall, ADM sold off the day President Bush gave a speech where he vowed to increase efforts to lower gasoline prices — a down-move on ADM that I felt was overdone. Tomorrow, there’s a good chance that ADM comes out and meets their earnings estimates — and actually raises their guidance for the remainder of the year. After all, if both the democrats and republicans (not to mention the obnoxious stock picker) all agree on the benefits of ethanol, then ADM is positioned perfectly to side this trend.

If ADM does raise their guidance tomorrow, we can witness a big-time up-move in ADM. Of course, the risk is that ADM reports solid earnings but does not guide higher, in which case Wall Street will most likely sell ADM on the news. Noting the possible risks, I’m willing to give ADM another shot at a big upside winner.

SPECULATIVE PLAY: Buy the ADM May 35 Calls (ADM EG) at or under $3.30, good for the day. Place a protective stop loss at $2.10.

As for other plays, I’m searching for a downside play (or two) to equal out the ledger.

Lock and load,

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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