Oil Hits 19-Month Low

AAPL and CTRP Starting to Rally

By Bryan Bottarelli
Tuesday, January 09, 2007 10:54 AM EST
Tue, 9 Jan 2007 15:54:00 GMT

Dear Bottarelli Research Member,

Late last evening, when news broke that U.S. air-strikes were targeting al-Qaida operatives in Somalia, my first reaction was “Heck yea — let’s end this war and get our troops home.”

Then, the second thought that popped into my head was that increased violence would probably lead to more uncertainly — which would most likely lead to oil prices moving higher. But as you know, this second though has been incorrect.

As we opened today’s trading day, oil prices traded down another $1.95 to $54.14 a barrel, a new 19-month low! Today’s loss means that oil has lost 11% in just the first five trading days of 2007 — averaging out to a loss of 2.2% per day.

I continue to feel that oil prices will snap back — and snap back hard. Today’s OIH chart, for example, shows just how far prices have fallen in less than one month, as the OIH has moved from $150 down to $127 from mid-December to today.

OIH

Any way you look at it — that’s quite a dramatic fall — and it won’t last forever. To play a rebound, I recommended the OIH February 140 Calls (OIH BH), but this morning’s fall hit our protective stop loss at $1.70. This is unfortunate, because the OIH has since rebounded and traded higher — but the safe thing is to cal the position closed. At least for now. I really think we’ll have the opportunity to make incredible gains playing more OIH and oil-related positions in the near future, but for now let’s close it off.

On the flipside, Apple (AAPL – NASDAQ) is looking good today.

AAPL

Shares climbed in premarket session — and have continued to rally today — just as Apple opened their MacWorld show (as noted earlier in our alerts). Aside from the iTV, rumors are swirling that Apple may unveil a cellular phone ahead of schedule — and that speculation is driving shares higher. The AAPL February 90 Calls (QAA BR) that we entered for $4.00 are about to hit $4.20, so any gains from here on out put us squarely in the profit zone.

Also moving in our direction is Ctrip.com (CTRP – NASDAQ) and Suntech Power Holdings (STP – NYSE), as CTRP has gained over $1.00 today and STP has lost lover $0.60 today. These two moves have helped our STP February 35 Puts (STP NG) and our CTRP February 65 Calls (QCT BM) get close to break-even, so let’s continue to hold each position for further directional action.

The most concerning position is our TIE February 30 Calls (TIE BF), and I’d like to get aggressive here. Ever since entering these calls for $2.55, the TIE has drifted lower alongside the broad-based metal weakness. But that doesn’t mean we can’t turn this position into a winner.

TIE

You see, although copper and gold get all the headlines, I feel that uranium and titanium will be the two best-performing commodities of 2007: Titanium for their increasing demand in the aerospace sector and uranium for his increasing attractiveness for nuclear power.

For that reason, I think the TIE February 30 Calls (TIE BF) are a steal at current levels — so I’d like to add to the position today. With the calls currently trading between $1.40 and $1.45, adding to our position would effectively lower our cost basis down to $2.00, allowing us to turn a faster profit the moment TIE begins to gain upside momentum. I admit, adding to this position is a little more aggressive, but I feel the risk is worth the reward. Here’s the trade:

PLAY: Buy more TIE February 30 Calls (TIE BF) at or under $1.50, good for the day. Lower your protective stop loss down to $0.70.

Lock and load

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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