Carefully Buying the Dip

Add PTEN and CLF Calls

By Bryan Bottarelli
Tuesday, May 20, 2008 2:53 PM EDT
Tue, 20 May 2008 18:53:00 GMT

PLAY: Buy the PTEN June 35 Calls (NZQ FG) at or under $1.00, good for the day.

PLAY: Buy the CLF June 100 Calls (CGJ FT) at or under $4.40, good for the day.

Dear Bottarelli Research Member,

The Dow is down 240 points today, and this sell-off has taken the Blue Chips right down to the 12,800 support level highlighted earlier in today’s alert. Check it out:

INDU

But despite this major red tick, we’re seeing some definite pockets of strength in toady’s action, most notably in the agriculture, oil services, and utility sectors. So the first order of business today is maintaining our WFT June 90 Calls (WFT FR). The stock triggered anew 52-week high today, and our calls got as high as $5.02. That’s a mere $0.08 away from our pre-determined sniper sell at $5.10, so continue working this order. We should get triggered soon.

Piggy-backing on the 52-week high tactic of WFT, I also like to scan for other stocks hitting new highs on extreme down days. That’s a sure-fire way of identifying companies exhibiting extreme strength. Some of the names that fall into this category today are Southwestern Energy (SWN – NYSE) and Apache (APA – NYSE). I also noticed that CNBC will be airing the first-ever interview with corporate executives of Petroleo Brasileiro (PBR – NYSE), and this could spark an upside trigger on my #1 favorite International oil play. All three of these stocks could represent strong June call-buying opportunities. But in my scan, two names have stood out above the rest, and I’d like to take a shot at carefully playing calls on each one.

The first stock is Patterson-UTI Energy (PTEN – NYSE). I must admit, this is a stock I played frequently (and quite successfully) in 2006 and the beginning parts of 2007, but has since fallen off the radar. The company provides onshore contract drilling services to independent oil and natural gas operators in North America, and as you can see, the stock is hitting new 52-week highs today — yet shares remain quite cheap. In fact, the PTEN June 35 Calls (NZQ FG) are currently trading for under $1.00, which is a bargain-basement price for a oil and gas drilling company hitting new highs. Therefore, let’s add PTEN calls to our ledger now!

PTEN

PLAY: Buy the PTEN June 35 Calls (NZQ FG) at or under $1.00, good for the day. Place a protective stop limit at $0.45 but do not place a sniper sell at this time. I’ll manage the exit of this position within our daily alerts.

Also looking like a strong “buy on dip” play is Cleveland-Cliffs (CLF – NYSE). As you can see, the producer of iron ore pellets and the supplier of metallurgical coal for steelmaking is engaged in a strong upside trend. Not only that, but shares have just split 2 for 1, which is always a bullish trigger that I love to see. Therefore, let’s also establish an upside call position in CLF and play pop on any bounce-back buying into the end of the week. Here’s the play:

CLF

PLAY: Buy the CLF June 100 Calls (CGJ FT) at or under $4.40, good for the day. Place a protective stop limit at $2.10 but do not place a sniper sell at this time. I’ll also manage the exit of this position within our daily alerts.

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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