Did We Really Close in the Green?

The Bulls Uncomfortably Wake Up

By Bryan Bottarelli
Wednesday, June 14, 2006 4:52 PM EST
Wed, 14 Jun 2006 21:52:00 GMT

Dear Bottarelli Research Member,

First thing’s first: If you did not get executed on your Goldman trade from yesterday, then you certainly got executed today.

The main part of the play turned out to be the GS July 125 Puts (GS SE), and they traded as high as $2.05 today when GS stock was trading down over $1.00. If you recall, we wanted to sell the entire basket of calls AND puts for $2.00, so this $2.00 price tick certainly triggered a legitimate sale. If you add in the ten cents from the GS July 170 Calls (GPY GN), then you’re looking at a nice little 3-day gainer. Congrats on your GS profits.

Next up is today’s Beige Book report on economic conditions. Since the Fed has made it perfectly clear that their next series of actions would be very data dependent, it’s a good idea to take a close look at what the key economic reports are saying leading up to the Fed’s June 29th rate decision.

To my eye, the latest series of economic reports look very non-inflationary, and that’s why I’ve been so skeptical of the media blaming this recent sell-off squarely on inflation fears. Today’s Beige Book is no different. In plain English, the report said, “Economic activity continued to expand (but) there were signs of deceleration."

On the consumer spending front, specific district reports show slower growth rates. On the residential real estate front, it wasn’t a shock to see slower growth across the entire country. Even the manufacturing sector had some reports of softening. If the Fed is true to their word, these reports clearly give them a reason to pause on June 29th. But like I’ve been saying for over a month now, I truly believe the market has priced in two more rate hikes. And this, in my humble opinion, could be the catalyst for the next upside rally.

Another important issue is the incredible amount of news coverage dedicated to tropical storm Alberto. Although the system fizzled over the eastern United States, everyone from Brian Williams of “NBC Nightly News” to Al Roker of the “Today Show” gave the storm a staggering amount of over-coverage.

I bring this up because such dramatic media coverage could lead to massive short-term gains in two of the beaten-down energy and natural gas plays I closely follow: Southwestern Energy (SWN – NYSE) and Patterson-UTI Energy Inc. (PTEN – NASDAQ).

SWN

Southwestern Energy is a natural gas and oil company with operations in Arkansas, Texas, Louisiana, New Mexico, and Oklahoma. As you can see by the chart, the stock had a huge 12% up-move today when they reported gross production from their Fayetteville Shale field reached 30 million cubic feet of natural gas per day. That’s a big-time increase from the 20 million cubic feet per day they had as of May 1st. If SWN gets any momentum behind it, the coming gains could be a LOT bigger.

Not to be overlooked, Patterson-UTI Energy provides onshore drilling services to oil and natural gas companies in North America — primarily in the Appalachian Basin. As you can see by the chart, a move back up to the 50-DMA could represent a rally up to $31.00 a share.

PTEN

These two stocks, among many others, are positioned for a summertime upside move. As soon as the markets have regained their footing, it’s off to the races. So let’s see if this rally can grow any legs tomorrow! Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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