Add HES Calls

Buying The Knee-Jerk Selling

By Bryan Bottarelli
Thursday, June 04, 2009 1:10 PM EDT
Thu, 4 Jun 2009 17:10:00 GMT

PLAY: Buy the HES June 60 Calls (IGG FL) at or under $2.65, good for the day. Place a protective stop limit at $1.20 and a pre-determined sniper sell at $4.40.

Dear Bottarelli Research Member,

Thus far, it’s been a muted trading day. As you can see below, the Dow is still trying to decide whether or not to break through resistance at the 200-day moving average. As I’ve said before, under typical market conditions, we’d certainly re-test the 50-day moving average at 8,250. But as we all know, these are not typical times. I’ll refrain from any more rants, but it remains clear that the bulls remain powerful. Yesterday’s closing day move, which trimmed a 130-point loss into a 60-point loss, is proof that dip-buying remains the tactical strategy.

INDU

In terms of today’s specific action, oil, metals, and commodity-based stocks are all recovering after yesterday’s beat-down. Yesterday’s one-day dip, followed immediately by today’s recovery, indicates that the upside trend remains in play. After a sector scan, I came across the chart formation on Hess Corporation (HES – NYSE), which has been notably weaker over the last few sessions than other oil-related counterparts.

HES

As you can see from the chart, HESS tapped the $70.00 level on Monday before falling all the way down below $57.50 on Wednesday. That’s quite a sharp correction. But today, shares moved right back up to the support level at the 50-day moving average. This could equate into an ideal entry point.

The reason for the severe sell-off was speculation that drilling at a Brazilian well (which Hess holds a 40% license partnership with Exxon Mobil and Petrobras) has been unsuccessful. But we haven’t heard any specifics from any companies, and we all know that it’s not wise to buy into media hype. As a result, I’d like to take advantage of the knee-jerk sell-off by adding HES calls now. If oil prices continue to recover from yesterday, we could have a nice winner on our hands.

PLAY: Buy the HES June 60 Calls (IGG FL) at or under $2.65, good for the day. Place a protective stop limit at $1.20 and a pre-determined sniper sell at $4.40.

Looking at our current positions, JRCC is recovering nicely after yesterday’s dip, so maintain your JRCC July 22.50 Calls (JQM GX) for more upside.

JRCC

In terms of our DRYS June 7.50 Calls (OOC FU), we just might have a great opportunity to add to our position if DRYS establishes a support level at the 50-day moving average. As you can see below, the 50-day has been a very nice support level for three months, and they’re just about to tap this level once again. If we see any upside movement off this level, we’ll quickly add to our calls and play the forthcoming bounce.

DRYS

As always, I’ll keep you fully informed as we go forward. But until then…

Lock and load!

Sincerely,

Bryan Bottarelli

Bryan Bottarelli
Editor, Bottarelli Research

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