Commodity Correction

Prepping for Oversold Buys

By Bryan Bottarelli
Monday, June 15, 2009 3:07 PM EDT
Mon, 15 Jun 2009 19:07:00 GMT

Dear Bottarelli Research Member,

The major market averages gapped lower on the open, and have drifted slowly lower throughout the day. No sector looks particularly good right now, as the former leadership groups like metals, oil, and commodities plays are all leading the downward push. As is the case with hot market sectors, you often times see sharp corrections, and today is no exception. But while everyone is questioning the longevity of this sector group, today’s selling pressure could present us with a really nice trading opportunity.

For example, I’m sure that you’re aware of my bullish position on gold, and also my price target of $1,300 by the end of the 2009 calendar year. Well today, gold prices are dipping, which is really taking a bite out of metals players like Agnico-Eagle Mines (AEM – NYSE). As you can see from the chart below, AEM has given up $10.00 over the last 11 trading days, now putting the stock at a support level at their 50-day moving average.

AEM

In my opinion, we could very well see the stock dip below this level tomorrow morning, as continuation selling pressure pushes metals shares into over-sold territory. But if this occurs, I feel we’ll have a great opportunity to buy AEM calls for a snap-back rally. Keep an eye on this play, because when it’s time to move, I don’t want to kill time outlining the trading thesis. As gold plays become oversold, let’s be ready to move.

At the same time, maintain both of your puts that we jumped into this morning. Unlike the commodity and metals plays, our UNP July 55 Puts (UHP SK) and our BEN July 75 Puts (BEN SO) are both companies operating in sectors that I feel are bearish. Like I said this morning, the time in the spotlight for the financials has passed, and a double-top failure on the Dow Transports indicates further downward selling pressure. Both plays have handed us modest returns throughout the day, to maintain each play for more gains.

At the same time, I will continue to follow our APA July 85 Calls (APA GQ) and our GDX July 40 Calls (GDX GN). Despite the broad-based market weakness, natural gas prices are jumping today (noted by the UNG chart below). This could lead to a quick recovery on Apache Corp.

UNG

And consistent with my comments on AEM above, the GDX chart should also find support right around the 50-day moving average, noted below.

As always, I’ll keep you fully informed on all trading developments. Until then…

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 June 2009