Play EXM Calls

Plus: Watching Oil/Energy

By Bryan Bottarelli
Monday, August 11, 2008 10:42 AM EDT
Mon, 11 Aug 2008 14:42:00 GMT

PLAY: Buy the EXM September 35 Calls (EXM IG) at or under $3.00, good for the day. Place a protective stop limit at $1.70 and a pre-determined sniper sell at $4.50

Dear Bottarelli Research Member,

Good morning. Over the weekend, nearly every financial journal I read made some type of argument about just how under-valued oil and energy stocks have now become. Major oil companies, for example, have been making more money than they’ve ever made in history, yet their stock’s P/E ratios are at some of the lowest levels in years. This is the exact “oversold” thesis I’ve been outlining in some of my recent trading alerts. But despite this incredibly cheap valuation, oil, energy, and even commodity plays continue drifting lower. I’m here to tell you: It’s only a matter of time before they post strong recoveries.

The reason, in my view, for the recent downturn is simple: The market has gotten too accustomed to oil/energy stocks rallying alongside increases in crude oil.

When oil was blasting up to $135 a barrel, it’s easy to understand why the oil/energy sector moves higher. But now that oil and natural gas prices have dipped, the market is aggressively punishing the individual companies tied to the price of crude. Then, the trickle-down effect occurs, extending the weakness onto commodities (like steel) and agriculture (like potash). And before you know it, you have a market that can only engage in specific sector-rallies when oil prices are pushing lower.

Take Friday, for example. The Dow gained 300 points, yet every commodity, oil, and energy company closed lower on the day. This type of market environment (when one group can rally only when another group is trading lower) doesn’t set a positive framework for breaking out of the recent downside move. Therefore, we will continue to closely monitor this situation — while cautiously playing the intra-day market moves using the best chart setups that become available.

INDU

As I’ve mentioned before, shares of Potash of Saskatchewan (POT – NYSE) is a powerful company that’s moved south lately. Should the stock find support at the 200-day moving average, I will issue a new upside call play.

POT

But in the meantime, we have a great opportunity to play September calls on Excel Maritime Carriers (EXM – NYSE). This morning, EXM reported Q2 net income of $126.8 million ($3.14 per share) versus net income of $20.0 million ($1.00 per share) in Q2 2007. Furthermore, revenues for the second quarter of 2008 amounted to $205.5 million versus $37.3 million for the same period in 2007, an increase of approximately 451%.In short, this morning’s earnings report was a blockbuster. As a result, EXM’s Board of Directors declared a dividend of $0.40 per share, payable on September 15th to all shareholders of record as of September 1st. This is exactly what I like to see when a small and growing company reports blowout numbers, and it could be the spark that triggers a new upside run in shares of EXM. Therefore, while we continue to monitor the oil, energy, and commodity sector, let’s play September calls now!

EXM

PLAY: Buy the EXM September 35 Calls (EXM IG) at or under $3.00, good for the day. Place a protective stop limit at $1.70 and a pre-determined sniper sell at $4.50.

And as always…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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