An “OK” Recovery

Bulls Toe the Line, Bears Could Be Back

By Bryan Bottarelli
Tuesday, May 23, 2006 3:52 PM EST
Tue, 23 May 2006 20:52:00 GMT

Dear Bottarelli Research Member,

First off, I hope that everyone enjoyed reading the “Aftermath Report” that was published today. Throughout the trading day, you should have been able to get into each of the five new upside plays for the recommended prices. If not, don’t worry — the plays are good for all this week, so feel free to enter them on your own time.

In terms of today’s market action, I’m pleased that the markets have found some pockets of strength, but I’m not quite convinced the bearishness is over for good. In an effort to balance out our current ledger, I’ve pin-pointed three potential put plays that could turn into new recommendations tomorrow.

The first potential downside play is the Semiconductor HOLDRs (SMH – AMEX). As you can see from the chart, the entire sector has been mired in a sea of extreme bearishness, as core holdings like Applied Materials (AMAT – NASDAQ), Intel (INTC – NASDAQ) and Texas Instruments (TXN – NYSE) are all suffering big time.

SMH

As I’ve been saying all along, the tech sector is one of the most bearish groups right now, and the semis are leading the charge. Tomorrow, there’s a good chance of seeing a new put play on the SMH.

In terms of single stocks, I’ve identified continued bearishness in both St. Joe (JOE – NYSE), the real estate company that owns 838,000 acres in northwest Florida, and Unitedhealth Group (UNH – NYSE), the long-suffering healthcare service company.

JOE

When I look at JOE, a move well under $50.00 could soon be in the cards. When I look at UHN, an attempt to rally past the $48.00 level was quickly smacked down — which has caused the stock to burst their recent support level at $44.00. This could mean a quick move down to the mid $30’s.

UNH

If that weren’t bad enough, UNH just reported that their revenue dropped another 7%, their operating cash flow was negative for the quarter, and their adjusted EBITDA was down by about one-third.

Tomorrow, you can expect to balance our call ledger with a few new put plays — either on these three or any new put plays that happen to crop up. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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