Over-Sold Alert

Watch OIH for Snap-Back, Play CTRP

By Bryan Bottarelli
Wednesday, January 03, 2007 12:56 PM EST
Wed, 3 Jan 2007 17:56:00 GMT

Dear Bottarelli Research Member,

What a day! As I write, the Dow is up over 100 points, yet every major oil name on Wall Street is getting clobbered. The ironic thing is — I can’t really figure out why.

Sure the weather has been warmer than usual — but that definitely does not constitute a $2.00 sell-off in today’s crude oil prices. To my eye, the oil sector is now in over-sold territory — and we could see a snap-back rally in the next few days. Case in point, check out today’s chart of the Oil Services HOLDRs (OIH – AMEX).

OIH

As you can see, the OIH has violently busted below the strong support level at $140, which represents the crossing of the 50-day and the 200-day moving averages. If we witness support around the $135 level, we could be looking at a quick and decisive pop back above $140. So let’s keep a sharp eye on the OIH for this pending buy trigger. It’s not time yet — but the trigger could be coming soon.

On the other hand, we have an immediate upside play on Ctrip.com International (CTRP – NASDAQ).

CTRP

As you know, CTRP has been a name I’ve spoken about before. I like them because of their China exposure, their liquidity, and especially their high levels of short interest. As we begin the 2007 calendar year, its’ clear that everyone is getting positioned in China companies — as virtually every China-exposed name on my watch list is lighting up like a Christmas tree. Therefore, I’d like to play upside calls on CTRP as a China short-squeeze proxy that could continue ramping up today, tomorrow, and Friday. Here’s the trade:

Buy the CTRP February 65 Calls (QCT BM) at or under $5.10, good for the day. Current bid/ask spread is $4.80 to $5.00. Place a protective stop loss at $3.30.

Also, your TIE February 30 Calls (TIE BF) have come down since today’s open, but our extended February expiration will work in our favor. With the last trade at $2.20, let’s place our protective stop loss at $1.10.

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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