Maintain ABX Calls

Watch JOYG and ZEUS

By Bryan Bottarelli
Thursday, May 08, 2008 11:08 AM EDT
Thu, 8 May 2008 15:08:00 GMT

Dear Bottarelli Research Member,

We once again have an inconclusive session of trading. Coming off yesterday’s 200-point loss on the Dow, the major market averages have struggled to hold into any gains in today’s session, which signals that there is still a great deal of directional confusion in the markets. As you can see below, the Dow sold off right at its 200-day moving average, and this down-move has taken the Blue Chip average right back to the 12,750 level, which happens to be the level that sparked the strong rally on May 1st.

INDU

Perhaps this inconclusive trading is occurring because the recent retail sales numbers have been all over the map. Some companies (like Costco) are coming in strong while other companies (like Target) are coming in weak — and this paints a muddled picture of the consumer’s buying power. Or maybe the inconclusive trading is occurring because of the choppy trading patterns we’ve seen in the oil and commodity sectors? Or perhaps it’s the inability of the financials to extend upon their gains in April?

To be honest, it could be any number of reasons. But the bottom line is this: We still don’t have a market environment that gives us any sort of trading “edge.” Therefore, the wise tactical idea to maintain our light trading ledger. As I write, the only position we’re holding is the ABX June 42.5 Calls (ABX FV). And from the looks of today’s ABX chart, we could finally be seeing the beginning stages of the upside recovery I’ve been expecting. Therefore, maintain your June calls for more upside.

ABX

Now, if I see signs that the markets could turn up, we could have a great trading opportunity in shares of Joy Global (JOYG — NASDAQ). As you can see below, the maker of mining equipment (for the extraction of coal) has been in a very consistent upside pattern, and based on the strength of coal, I fully expect this upside trend to continue. Therefore, a new upside call play on JOYG could trigger today or tomorrow.

JOYG

On the same hand, steel has also been remarkably strong, which has opened up a possible trading opportunity in shares of Olympic Steel (ZEUS – NASDAQ).

ZEUS

Now I admit, ZEUS is a stock that has just recently been added to my watch list. But as you can see from the chart, ZEUS shares (like JOYG) have been consistently moving higher — which is a trend that I’m not willing to bet against. Therefore, we could have a possible trading opportunity in ZEUS as well, so be prepared for an upside call play should the conditions warrant.

If (and when) it’s time to make any new plays, you’ll be the first to know. But until then,

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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