A Return to Form

Sectors Setting Up Nicely for Next Week

By Bryan Bottarelli
Friday, June 02, 2006 4:19 PM EST
Fri, 2 Jun 2006 21:19:00 GMT

Dear Bottarelli Research Member,

As the shortened trading week comes to a close, there isn’t all that much new to report from our last correspondence.

  • Gold is showing signs of recovery, which bodes well for our ABX October 30 Calls (ABX JF).
  • Homebuilder stocks continue to experience broad-based weakness, which bodes well for our JOE July 50 Puts (JOE SJ).
  • GPRO keeps on making quick moves to the upside, which is why I’ve now set a $6.50 sell on your GPRO November 55 Calls (PSU KK), good until cancelled.
  • And CAT is one again showing a slight red-tick, which is allowing you to enter into the CAT November 75 Calls (CAT KO) for under $5.00 — which I feel is a great entry price.

In terms of today’s action, all five stocks that I profiled yesterday are up today — with gains coming in OII, XRAY, KEX, SWN, and THE. This makes me that much more confident that we’ll have some strong trading opportunities next week.

Also, it’s a good sign that the bullish and bearish market sectors are one again settling back into their established trends. For example, today’s best performing sectors are Oil Services, Energy and Gold. On the flipside, today’s worst performing sectors are Semiconductors, Home Builders, and Internet. This corresponds perfectly with the upside and downside bias I’ve been taking on our recent plays.

When I comes to the economic front, I’ve been saying that I feel two more rate hikes have already been priced into the markets. Today, this thesis seems validated when weaker-than-expected job growth in May was actually viewed as positive — since it could convince the Federal Reserve to possibly stop raising interest rates. You see, if I’m right, and two rates hikes are already priced in, any news of the Fed stopping short of 5.5% could actually spark a market rally. It may sound illogical, but that’s sometimes the case on Wall Street.

One final note about the company we used to own put options on: UnitedHealth (UNH – NYSE). I just watched a segment on CNBC where Jim Cramer said he’d be a seller at the $47.00 level because he feels that the press doesn’t want to let go of the options back-dating scandal. I couldn’t agree more. In fact, I still feel that UNH could be in a world of hurt if this back-dating scandal escalates. In other words, we may not be finished playing UNH puts.

*ADMINISTRATIVE NOTE: I’ve received a few notes from Charter Members who requested that I make all my alerts and reports “printer friendly.” Thanks to my hard-working webmaster, your wish is now a reality! You will now find a special link at the top of every alert and special report that allows you to perfectly print off any research you want without any printer-cutoffs.

Have a good weekend, and we’ll get back to some quick-hit trading next week! Until then…

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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