Oil Service and Energy Look Attractive

Now that May is Over, Quicker Trading Could Resume

By Bryan Bottarelli
Wednesday, May 31, 2006 5:02 PM EST
Wed, 31 May 2006 22:02:00 GMT

Dear Bottarelli Research Member,

The month of May has finally come to a close. Good riddance!

The S&P 500 surrendered 3.1% this month — nearly recording its worst performance in 22 years. The NASDAQ lost 6.2% this month, re-living the internet-bubble days when it surrendered 11.9% in May of 2000.

When you look back, the massive hemorrhaging began on May 10th when the Federal Open Market Committee implemented its 16th consecutive quarter-point rate increase dating back to June of 2004. On the heels of this rate hike, the Fed signaled even more rate increases which equated into the monthly losses I noted above.

What’s interesting today is that at 2:00 Eastern Time, the Fed released their minutes from their May 10th meeting — and of course — it was littered with looming inflation concerns and hinted at raising interest rates even further (talk of a 50-basis point rise was even mentioned while no talk of a rate halt was even brought up).

Immediately after this release, the Dow went from a 60-point gain to an 8-point loss. Then, after the markets realized that these inflation concerns have already been priced into the markets (in the form of one of the most violent market sell-offs in recent memory), the major market indices recovered and closed the trading session close to their intra-day highs. To me, this could be the signal that we’ve established a near-term floor.

If that’s true, it certainly makes a strong upside case for my favorite oil-service and energy stocks. It’s quickly becoming apparent that $70 is the magic number for oil. In other words, if you can time it correctly, buying oil stocks on dips under $70 and selling them on any rallies over $70 could produce some strong short-term gains.

In fact, now that the month of May is over, I feel that we could get back to some faster in-and-out trades. And what better way to get back to this tactic with some of the market’s best oil and energy plays? That’ll certainly be the focus moving forward.

Until then, I continue to like all out upside plays on CAT, ATK, ABX, DNA, and GPRO (which was a sell at $6.50 in today’s morning alert). I also continue to like our downside plays on JOE and UNH. If its’ appropriate to add anything more to the ledger, you’ll be the first to know. As always…

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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