New Play Candidates

Possible Plays on D, ETR, BDK

By Bryan Bottarelli
Monday, June 11, 2007 10:50 AM EDT
Mon, 11 Jun 2007 14:50:00 GMT

Dear Bottarelli Research Member,

Let’s kick the week off by looking at a chart of the Dow Jones Utility Average (UTIL).

UTIL

As you can see, the Dow Utilities were the first major sector group to begin the recent market down tend, dropping from a high of 537.12 on May 22nd down to a low of 485.83 on June 8th. That’s a 9% drop over 13 trading days! But now the early indications are that the Utilities might be forming up a near term support point at 490, which means it could be time to establish a new upside call play on one member of this Dow Utility group. While comparing all the companies within the utility sector, one of the top upside candidates is Dominion Resources (D – NYSE).

D

As you can see, over the course of one month, the integrated gas and electric company fell from trading above its 50-day moving average to re-testing its 200-day moving average. That’s quite a fall — and this 11% down-move is 2% more than the 9% fall experienced by the collective Utility group. The timing is not quite right yet, but if D continues to hammer out a support point we could have a new upside call opportunity.

Also catching my eye is Entergy (ETR – NYSE). The owner of several northeastern nuclear power plants has fallen from $120 down to $105, which represents a 15% haircut in one calendar month. Similar to D, we could witness a snap-back move in ETR that takes the stock higher, so I’ll also monitor ETR for a pending upside call play.

ETR

Over on the put side, Black & Decker (BDK – NYSE) is looking rather weak. The major power-tool manufacturer is just now threatening to bust underneath its 50-day moving average — and a rupture at this level could spark a drop that takes the stock all the way down to fill the gap set at $84.00. That’s a $6.00 down-move from current levels!

BDK

Combine that bearish formation with massive insider selling (just last week, 5 BDK corporate executives sold over 290,000 BDK shares for processes over $27 million) and it looks like BDK is in danger of penetrating this key support level. If the stock breaks down, we’ll want to enter BDK puts — but let’s monitor the situation and act when the timing is right.

I’ll keep an on these formations, and as soon as we get a sense of the market’s next directional move we’ll make a play. But until then, let’s see how today’s early action sorts out before striking. I’ll let you know the moment something happens — but until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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