Setting the Tone

Fire Up These Potential Plays Early Next Week

Dear Bottarelli Research Member,

I’ve spend most of the day digging into, what I feel, are the very best opportunities to play to the upside early next week.

As I mentioned yesterday, I feel that two more interest rate hikes are fully priced into the markets, and this thesis was supported yesterday when the markets actually rallied after the release of the Fed’s minutes.

Based on this outlook, I’d like to remain cautiously to the longer-term upside on some of the strongest stocks on the market (as featured in the Aftermath Report), while at the same time being nimble when it comes to the shorter-term. This tactic involves near-term puts combined with a careful combination or near-term calls.

As it stands now, we’re only holding one near-term call in the form of JOE July 50 Puts (JOE SJ). This position continues to trend down, as JOE hit a fresh 52-week low once again today. We were, however, stopped on the Unitedhealth Group July 45 Puts (UHB SI) at $2.60.I’m still shocked that anyone would go long this stock with a massive storm cloud overhead in the terms of their options backdating scandal, but it’s better to be safe and stock to our protective trading rules.

For next week, I’d like to get back to some faster trading. Therefore, I’ve zeroed in on the best candidates in the oil and energy sector — because that’s where I feel you have the most potential for quick gains, especially coming on the heels of such strong selling pressure last month.

Having said that, there are a handful of other companies that I’ve discovered in various other sectors that could prove to be big time winners. So as a sneak-peek, here’s the short list of stocks I’m 99% ready to pull the trigger on:

The first company is Oceaneering International (OII – NYSE), a mid-cap growth stock that’s a perfect mix of oil service and gas.

The company’s oilfield business deals with maintenance of underwater construction and above-water oil platforms. They company also works with NASA to make portable life-support systems and robotic systems for space stations. When you look at the significant price moves the stock made in the brutal month of May, you’ll see just how strong the stock has been:

· 05-11-06: OII hit a new 52-week high

· 05-22-06: OII changed this year and next year’s EPS estimate

· 05-24-06: OII experienced volume more than 2x their 30-day average

· And today, OII hit another new 52-week high

I’d expect the stock to easily break the $80.00 mark in the coming weeks, so get ready to play OII to the upside.

The second company I’m targeting is Southwestern Energy (SWN – NYSE), the Houston-based gas utility with proven reserves of 827 billion cubic feet (bcfe) and production that averages 167 million cubic feet a day.

On May 1^st, Southwestern Energy announced record earnings of $58.4 million — an increase of 79% from 2005. As you can see by the chart, SWN looks like it’s established a solid floor between the $30.00 and $32.00 level, which means I’d expect the next move to be up to the convergence of the 50-day and 200-day moving averages at $35.00.

The third company is Kirby (KEX – NYSE), a great combination of two bullish indicators that I scan for: Strong up-trends marked by new 52-week highs AND a recent stock split. Each of these represent indisputable bullish indicators that signify continued upside strength.

Today, KEX split 2 for 1. Kirby is the nation’s largest inland tank barge carrier. The company controls a whopping 33% of the total number of domestic inland tank barges, transporting a wide range of materials including petrochemicals, agricultural chemicals, black oil, and refined petroleum.

12% of their $795 million in revenue in 2005 came from Dow Chemical, so they are on the payroll of some deep-pocketed companies. That’s always a good sign when it comes to consistent earnings. Case in point, KEX announced record net earnings on April 26^th of $0.85 per share. That’s a big jump compared to their $0.52 per share for the 2005 first quarter. The chart shows a beautiful bounce off the 50-day moving average, which means another upside run at the $40.00 is in the cards.

Another stock I love to follow is Transocean (RIG –NYSE). But an indirect play on RIG came to my attention today in the form of Todco A (THE – NYSE). THE is an oil and natural-gas driller that was formed after their parent company, Transocean, began to focus exclusively on deep-water drilling. What happened is that RIG packaged together its 65 shallow-water rigs under Todco and took the new company public in February 2004.

As you can see by the chart, the stock is bouncing very hard off the $40.00 level, which could possibly mean another run at their recent high just north of $52.50.

Finally, let’s get away from the oil and energy plays and look at a sector that I’ve been bullish on as a demographic play for years: Dental stocks.

The thesis is simple: As the American population ages, dental maintenance will become an urgent need. And since baby boomers are notorious for neglecting their teeth (as trips to the dentist just 10 years ago are nothing like they are today), the potential market for dental stocks is enormous — yet nobody is talking about it. What’s why it’s no wonder that Dentsply International (XRAY – NASDAQ) just popped up as a continued bullish indicator.

XRAY manufactures artificial teeth, impression materials, root-canal products, crown and bridge materials, dental sealants, dental implants, headpieces, and of course X-ray equipment (thus their ticker symbol XRAY). Similar to Oceaneering International fromabove, XRAY posted a series of strong technical indicators in an incredibly bearish month of May.

· 05-08-06: XRAY Exceeded their EPS estimates

· 05-12-06: XRAY hit a new 52-week high

· And today, XRAY hit another new 52-week high

Since mid-April, XRAY has been sloshing around in a very tight range between $59.00 and $60.00. But today, the stock aggressively broke to the upside, which signals good things over the next few months.

Now that the table is set, you can expect new plays on any one of these stocks early next week. Or, if the timing is right, it may be time to jump into a handful of them tomorrow. At any rate, get ready for some serious trading action. Until then…

Lock and load

Sincerely,