Friday Wrap-Up

Oil Rises While Oil Stocks Lag

Dear Bottarelli Research Member,

We’re seeing a rather interesting divergence in oil prices and oil stocks today — as oil prices are $1.16 higher on the New York Mercantile Exchange but oil stocks, across the board, are not showing any sizable reaction. For example, names like Marathon Oil (MRO – NYSE), Exxon Mobil (XOM – NYSE) and Chevron (CVX – NYSE) are all trading a few cents higher or lower — equating to a rather insignificant reaction to oil’s very nice jump. Why is this happening?

Perhaps the muted trading today is due to the fact that wild oil price swings have become rather customary in 2007. Case in point, 11 out of the past 16 trading sessions have seen daily oil price moves of more than $1.00. Yesterday, for example, oil prices dropped more than $1.00 before closing the day down just a penny. With intra-day action like this, you’re probably seeing traders play it cautions today — as we’re leading into a long three-day holiday weekend. The thinking is that since the markets are closed Monday for President’s Day, there’s no use making a sizable bet on oil until next Tuesday. At least that’s my guess.But come next week, we could see a higher level of buying interest — and that could lead to some very nice trading opportunities.

For example, let’s take another look at Transocean (RIG – NYSE). As you can see, the stock traded right down to its 200-day moving average and found support — which could set the table for another 2-3 day up move next week. Considering that the RIG March 80 Calls (RIG CP) are currently trading for $1.15, there’s a good chance I’ll re-enter this play very soon. All it takes is one strong pop and we could have an easy double on our hands — and I truly think RIG is on the verge of a break out.

Also catching my eye is Valero Energy (VLO – NYSE). As I’ve noted in previous alerts, I wanted to let VLO come back down a little before entering any new call plays — and the past few trading sessions have seen this happen. If VLO can muster up the strength to break above its 200-day moving average (which is the red line in the upper right hand corner of the chart) you better believe the stock will blast higher. Similar to RIG, this could be a possible trade for next week.

Our Las Vegas Sands (LVS — NYSE) play has been all over the map today, as the stock traded $1.00 higher and $0.80 lower all before noon. I don’t think this will make any investing impact, but LVS could get some increased media exposure with the NBA All Star game taking place this weekend in Las Vegas. As the stock continues to hammer out a support point, maintain your LVS March 95 Calls (LVS CS).

Also keep a close eye on the Dow Transports (TRAN). As you can see, the rails and truckers have been using the reduced oil prices to stage a very strong rally — but now that oil is threatening to break back above $60 a barrel, we could see a sharp Transport sell-off. Adding a put on the most vulnerable transport company could be a smart move next week.

And finally, keep a very close eye on is Whole Foods Market (WFMI – NASDAQ). Ever since their massive gap-down in early November, the stock has done absolutely nothing. But just today, for the first time in over 6 months, the stock has peeked its head above its 50-day moving average — which could be the beginning of a newly-established up-trend.

In the way of comparison, a very similar chart formation can be seen in Caterpillar (CAT – NYSE).As you can see, CAT experienced a tremendous gap-down (just like WFMI) in mid-October, and traded virtually flat in the months that followed. But when nobody was looking, the stock closed above its 50-day moving average in late January — and a month later the stock was off to the races, trading $8.00 higher!

Although we missed this move in CAT, let’s stand ready to participate in this same pattern in WFMI. Look for all of these trades starting next Tuesday — and until then…

Lock and load!

Sincerely,