Your End of Day Wrap

Markets Continue to Search for Footing

By Bryan Bottarelli
Tuesday, May 16, 2006 4:52 PM EST
Tue, 16 May 2006 21:52:00 GMT

Dear Bottarelli Research Member,

As we close Tuesday’s trading day, I’d like to quickly re-iterate our tactical trading strategy moving forward.

First and foremost, we’re coming out of a two day period (last Thursday and Friday) that represented the most violent two-day sell-off of the 2006 calendar year. Not to be outdone, last Monday gave birth to a massive correction in virtually every precious metals play — leaving no safe-harbors over that brutal three-day period. In today’s trading session, the overall markets sheepishly moved higher and lower — but did not make any significant directional move. This means we’re still at a crossroads where the odds for further upside or further downside are each pinned at 50%.

Like I mentioned this morning, the tactical plan is to jump on those very strong companies that have experienced sell-offs that have gone too far. Some of those candidates on my radar screen are metals plays Barrick Gold (ABX – NYSE) and Titanium Metals (TIE –NYSE).A quick look at the ABX chart shows that the stock has come down and may want to call the $31.00 level support.

ABX

I also like heavy machinery company Caterpillar Inc. (CAT), natural gas company Ultra Petroleum (UPL – NYSE), and a laundry-list of others. Also don’t forget about Monsanto (MON – NYSE), one of the purest worldwide population plays out there.

As China and India continue to grow at a rapid pace — combined with worldwide global warming and drought-like conditions, massive scarcities of food and water is not a speculation, it’s a virtual guarantee. As the world’s best genetic seed company, one that can modify seeds to grow crops bigger, faster, and in adverse weather environments, MON is a company I’ll be bullish on for quite some time. Over the last two days, the stock has rebounded and set the table for a move higher. Similar to what we did with Archer-Daniels-Midland (ADM – NYSE), don’t be surprised if we jump into MON calls again.

MON

As we cautiously add strong stocks to the ledger, the plan is to also protect against further downside by adding puts on the weakest stocks in weakest sectors — notably Amazon.com (AMZN – NASDAQ) and Ryland Homes (RYL – NYSE) in the tech and homebuilder sectors. If the U.S. housing market continues to display weakness, RYL has a long ways to drop. As you know, stocks making new 52-week lows continue to make new 52-week lows.

RYL

As always, I’ll keep monitoring everything for the best entry prices. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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