Addressing USO

Plus: APA, CELG, and GENZ

By Bryan Bottarelli
Friday, July 25, 2008 11:27 AM EDT
Fri, 25 Jul 2008 15:27:00 GMT

Dear Bottarelli Research Member,

Oil prices are down this morning, yet in a rather odd anomaly, both United States Oil (USO – AMEX) and UltraShort Oil &Gas ProShares (DUG – AMEX) are trading lower as well.

USO

As I mentioned yesterday, it appears like USO was hitting a bear-term bottom and DUG was hitting a near-term top, which indicated a spike in oil prices leading into the weekend. But as of this morning, oil prices have actually moved lower, pushing the USO under its support point at $100.00.

DUG

But strangely enough, shares of DUG are moving lower as well, which offers a very odd signal for oil prices moving forward. After all, DUG is an ultra-short oil position, which should move up at twice the rate of oil’s decline. Therefore, DUG should be showing a nice upside move today. But since it’s down, this offers an early warning signal that perhaps traders believe that oil prices are indeed bottoming out. Therefore, if you’re still holding your USO calls, I’ll continue to monitor this position leading into next week. Of course, if it dips back down to our $3.90 stop limit prior to the close, then we’ll call the position stopped.

In terms of the remainder of the trading day, I’ll hold off on making any more picks. But looking into next week, we could have three powerful upside plays in the works. The first comes in the form of Apache (APA – NYSE), which could be bottoming out right under the $105.00 level. In the midst of yesterday’s 273-point sell off, shares of APA only lost a few cents, which indicates that the stock has bottomed out and could pop to the upside on any forthcoming oil and energy bounce.

APA

Also looking strong is the biotech sector, highlighted by companies like Genzyme (GENZ – NASDAQ) and Celgene Corporation (CELG – NASDAQ). We’ve successfully played GENZ calls before, but now it appears like a breakout in CELG is in the works. In the midst of the June/July bearishness, the biotech sector has been the clear-cut winner, so CELG could be a forthcoming upside play as well.

CELG

As always, I’ll continue to scan for the best trading opportunities. But like I said above, I’ll hold on issuing any new trades until next week. After all, low-volume summer Fridays are typically not an ideal time to enter into new plays, so unless something urgent comes up, we’ll talk again next Monday. Until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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