Add ACI Calls

Plus: Close USO and XAU

By Bryan Bottarelli
Tuesday, July 29, 2008 10:57 AM EDT
Tue, 29 Jul 2008 14:57:00 GMT

PLAY: Buy the ACI August 55 Calls (ACI HK) at or under $3.30, good for the day. Place a stop limit at $1.90 and a pre-determined sniper sell at $4.40.

Dear Bottarelli Research Member,

I must admit, the major market averages are making a surprise move to the upside today, as strong earnings news from U.S. Steel (X – NYSE) have overshadowed more CDO write-downs at the rate of $0.22 on the dollar from Merrill Lynch (MER – NYSE).As a result, it appears like money is flowing out of financials (that was quick!) and back into strong demand-driven sectors such as coal and steel. This transition has helped the Dow recover 140 of yesterday’s 230-point sell-off.

INDU

This temporary move to the upside is causing both oil and gold to dip back down, and that means it’s time for us to close off our XAU August 180 Calls (XAV HP) and our USO August 100 Calls (IYS HV). The oil market in particular has been extremely “jumpy” lately, meaning that it’s difficult to play and trend longer than one day. Therefore, I’ll shy away from further oil plays until we witness more stability. Looking at the USO chart, my thesis was that the $100 level would act as the floor, but today’s move below this level acts as a warning sign that further downside could be coming.

USO

In terms of the Philly Gold and Silver Index (XAU – PHLX), the share price completely lost ground yesterday as the sell-off intensified, and today it has dropped to trigger our stop. This late-day action was quite baffling, as you would think traders would flow into metals during a market sell-off, but that just did not materialize.

XAU

So what you have is a weak market (speaking of yesterday) combined with weak oil and weak gold. And today, you have a strong market combined with weak oil and weak gold. Odd trading patterns like this only strengthen our trading strategy of locking in super-fast profits the moment we have a winner of 20% (or more) in hand. So on that note, I’d like to get re-positioned to ride a momentum play back in the coal sector.

You see, Fording Canadian Coal Trust (FDG – NYSE) agreed today to sell all of its assets to Teck Cominco for around $14.1 billion. This proves that despite a weak economy, coal will be a strong demand play for years to come — and it supports carefully picking up coal plays on any dips. Therefore, I’d like to make a quick upside play on Arch Coal (ACI – NYSE).

ACI

As you can see, ACI encountered resistance at its 50-day moving average, but has now established support at its 200-day moving average. Therefore, it would appear that a quick move past $60.00 (perhaps sparked by today’s FDG or U.S Steel news) would be in the cards. Therefore, let’s play this momentum play using August calls. Here’s the play:

PLAY: Buy the ACI August 55 Calls (ACI HK) at or under $3.30, good for the day. Place a stop limit at $1.90 and a pre-determined sniper sell at $4.40.

At the same time, continue to hold your LAMR August 35 Puts (LJQ TG) and your GENZ August 75 Calls (GAA HO) for further upside. And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

© 2012 CSR Group, LLC. All rights reserved. Published in USA.

Information, opinion, research, and commentary contained herein is obtained from sources believed to be reliable; their reliability, however, cannot be guaranteed. The maxim of Caveat Emptor applies — let the buyer beware. Bottarelli Research does not provide individual investment advice, act as an investment advisor, or individually advocate the purchase or sale of any security or investment.

Investments recommended in this service should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Bottarelli Research reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscriber’s initials will be used unless express written permission has been granted to the contrary.

CSR Group, LLC expressly forbids its writers from having a financial interest in any security recommended to readers. Furthermore, all employees and agents of CSR Group, LLC and its affiliate companies must wait 24 hours before following a published recommendation.

Bottarelli Research alerts contain time-sensitive information, and are published and distributed to members with urgency. Because of this, not all published materials can be adequately proofread, and an occasional spelling or grammar error may exist.


Other Options Alerts From July 2008