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Weekly Newsletter, Saturday, 05/27/2006

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Table of Contents

  1. Commentary
  2. Changes in Portfolio
  3. Portfolio Listing
  4. New Plays
  5. Existing Plays
  6. Watch List

Leaps Trader Commentary

Not Bad Considering

The rebound in oil prices built a fire under some energy stocks but the list of those with decent rebounds was limited. There was just too much carnage in the prior week. Traders are still hurting from the beating and are reluctant to jump back into the battle.

We saw oil rebound from $68.50 as the old contract expired. Resistance is holding at $72.50 as we await the demand numbers from the holiday weekend. Demand over the next two weeks will be critical for oil prices.

Hurricane season begins officially next week but there are no storms on the horizon tonight. Prices firmed slightly as the various weather forecasters got their 15 min of fame predicting a strong hurricane season. Once the first storm is sighted we should see another spike in prices even if the storm is well away from the Gulf. It is all about awareness and planning ahead.

Saudi Arabia finally grew tired of sitting on that excess heavy crude production and contracted with Conoco Phillips and Total to build a new 400,000 bpd refinery each. The cost of each is expected to be $5 billion and take five years to build. Once completed it will allow Saudi to market its cheaper crude as high dollar low sulphur fuel thereby increasing its income and its utilization of the less desirable crude.

Natural gas in storage rose again last week by +83 BCF to 2,163 BCF and +50.2% above the five-year average. This is also +471 BCF above last year's levels. Unless we have an extremely hot summer requiring massive amounts of gas to generate electricity we could go into winter with a record amount of gas in storage. This will eventually pressure prices even further below the $6 range where it has hovered all week. Gas producers like UPL, CHK, ECA, EOG and COP have been crushed since early May. This is not likely to change until summer gas demand arrives. I would also remind everyone that the record high storage levels of 3,327 BCF set in 2004 was depleted in only a few months and we nearly ran out of gas shortly thereafter. Once Mother Nature goes on an ugly streak we can burn huge amounts in a short period of time. Currently the December gas futures are selling for $9.68 compared to $6.15 for the current June contract. This premium will evaporate very quickly if summer weather fails to appear. A quick check of a weather map on Friday night showed 90% of the nation with elevated temperatures. Let the electricity flow!

This should be a tame week in the oil patch unless a hurricane appears or some new geopolitical event occurs. All eyes will be focused on the dual oil/gas inventory levels due out on Thursday. The oil inventory levels will be delayed one day due to the holiday. In this weeks numbers we should see the initial impact from the Valero fire and from fuel draw downs ahead of the holiday weekend. Expectations are for declines in every number.

We should be encouraged by the strong support hold at $68.50 last week. This should be our line in the sand and a level where oil will use as a base until the first hurricane is reported. It is also a level where oil company earnings will continue to grow and therefore prices of energy stocks. Nothing has changed materially in the outlook for energy and we will continue to get this volatility in prices but maintain the constant long-term upward bias. Recent price estimates for later this year seem to be centered in the $78-$80 range and that works for me.

Monday was black Monday for me. With the overseas markets imploding all the energy/commodity stocks went into free fall. I had instituted insurance puts on most of the positions last Sunday. Several of those were triggered at the gap down open for a substantial increase in premium. The good news is we have insurance. The bad news is that we paid a premium for several positions.

After being blown out of so many positions during the May dip I hesitated to jump back in so quickly. Now that the smoke has cleared I am going to target $69 oil as our next entry point for some 2008 LEAPS. Stay tuned. I am not going to produce a long list of candidates but instead select stocks based on market action and outlook as it occurs. I will send out an update during the week if I feel an opportunity has presented itself. This way we have a better chance of a good entry rather than being at the mercy of the market for a week between newsletters. Late summer is not normally a time to add to energy positions. There could be a soft patch ahead and we want to wait until the timing is right. We already have enough positions to capitalize on the early summer bounce. This does not mean there will not be any entries, just that they will be more targeted until a new trend develops.


Oil Service Index - Daily

July Crude Futures - Daily

December Crude Oil Futures Chart - Daily

June Natural Gas Futures Chart - Daily

December Natural Gas Futures Chart - Daily

 


Changes in Portfolio

New Plays
TIE $38.22 Titanium Metals

Dropped Plays
RAIL $63.13 FreightCar America ** Stopped $63 **

New Watch List Plays Triggered
FTI $64.75 FMC Technologies

Portfolio Listing & Top Picks


New Plays

Most Recent Plays

FTI - $64.75 - FMC Technologies

After a nice continuation dip on Monday FTI rebounded out of the box on Tuesday hitting our breakout trigger. I had hoped for a little more decline to trigger our breakdown entry at $60 but it did not happen. FTI has rebounded to resistance at $65 and appears to be coiling for a breakout. This stock can move fast once a trend develops.

The insurance put for $1.10 will remain our protection. I am not planning on exiting that coverage at this time. We saw lightning strike in multiple places in the prior week and I want to err on the side of caution. However, if we were to get hit by a disaster I would exit the put ONLY on a touch of $56.50.

Profit stop: Exit put only on a touch of $56.50

Company info:

FMC Technologies, Inc. provides mission-critical solutions for the energy, food processing and air transportation industries. The Company designs, manufactures and services machinery and systems for its customers through four business segments: Energy Production Systems, Energy Processing Systems, FoodTech and Airport Systems. Energy Production Systems segment designs and manufactures systems, and provides services used by oil and gas companies involved in land and offshore, including deepwater, exploration and production of crude oil and gas. Energy Processing Systems segment designs, manufactures and supplies high-pressure valves and fittings for oilfield service customers. FoodTech segment designs, manufactures and services food processing and handling systems to the food industry. Airport Systems segment is a global supplier of passenger boarding bridges, cargo loaders, and other ground support products and services.

Earnings update on May 9th
The Houston-based machinery manufacturer earned $47 million, or 67 cents a share, compared with breakeven a year ago. Analysts polled by Thomson First Call were estimating earnings of 45 cents a share, in the most recent quarter.
First-quarter revenue rose 27.5% from a year ago to $869.3 million. Analysts were estimating revenue of $819.3 million.
For fiscal 2006, the company increased its earnings guidance to $2.60 to $2.80 a share from $2.20 to $2.40 a share. Analysts surveyed by Thomson First Call are estimating earnings of $2.43 a share.
Its inbound orders in the first quarter increased 74.9% to $1.1 billion from the prior-year quarter. Order backlog climbed to $2.2 billion in the quarter on strong subsea inbound orders.
Energy systems revenue, which contributed 78.2% to total revenue, increased 34.1% to $679.9 million from a year ago. FoodTech business segment revenue rose 10.2% to $123.3 million and airport systems revenue rose 5.4% to $68.2 million.
"We are pleased with the outstanding performance in first quarter. Our results were driven by our subsea systems business as well as our surface systems and fluid control businesses," the company said.

Breakout trigger $63.50 Hit 5/23
Position: Oct $65 Call FTI-JM @ $5.80
Position: June $60 PUT FTI-RL @ $1.10

Entry $63.50 (5/23)

TIE - $38.22 - Titanium Metals

We have tried to play TIE before but have been unsuccessful. The recent drop coupled with the 2:1 split has lowered the barrier to admission by reducing the option premiums. I believe TIE is readying a breakout over resistance at $38 and that could trigger short covering and a sprint back to its highs. TIE is not related to the energy business other than making products used in the oil and gas sector. It should be somewhat immune to any future fluctuations in energy prices. Global demand for titanium should be the driving factor and a recent report stressed that demand was rising rapidly.

I elected to add TIE as a play today due to the potential impending breakout. The last time I saw this setup on TIE was back in April and the breakout ran for $40 pre-split.

TIE has split 2:1 THREE times in the last 12 months.

Company info:

Titanium Metals Corporation (TIMET) is a producer of titanium sponge, melted products and a variety of mill products for aerospace, industrial and other applications. For the commercial aerospace industry, the Company supplies titanium products to manufacturers of commercial airframes. Outside of aerospace markets, the Company manufactures a range of products for customers in the chemical process, oil and gas, consumer, sporting goods, automotive, power generation and armor/armament industries. Approximately 15% of the Company's sales revenue, during the year ended December 31, 2005, was generated by sales into industrial and emerging markets. TIMET markets and sells its products in the United States, the United Kingdom, France and Italy.

Buy December $45 Call TIE-LI currently $5.70 (no LEAPS)

Insurance put:
5/28 Buy July $30 PUT TIE-SF currently $1.60 ONLY if TIE trades at $34.

Entry $38.22 (5/28)

 


Play Updates

Existing Plays

BHP - $44.06 - BHP Billiton Limited ** No Stop **

BHP imploded at Monday's open to touch support of the 100-day at $40 on extreme volatility in the metals markets. Fortunately it rebounded out of the depths and appears to be coiling for a breakout over resistance at $44.

Company Info:

BHP Billiton Limited is a diversified resources group. The Company is an exporter of metallurgical coal for the steel industry; an exporter of energy coal; a producer of iron ore, copper, nickel metal, manganese ore, primary aluminium and manganese and chrome ferroalloys. It also has substantial interests in oil, gas, liquefied natural gas (LNG), diamonds, silver and titanium minerals. BHP Billiton operates in seven segments: Petroleum (oil, natural gas and LNG), Aluminium (aluminium and alumina), Base Metals (copper, silver, zinc and lead), Carbon Steel Materials (metallurgical coal, iron ore and manganese), Diamonds and Specialty Products (diamonds, titanium minerals and metals distribution), Energy Coal (energy coal) and Stainless Steel Materials (nickel metal, and chrome and nickel ferroalloys).

Breakdown trigger $46.75 hit 5/15
Position: 2008 $50 LEAP Call LPH-AJ @ $7.50

Insurance put:
Position: JUNE $40 Put BHP-RH @ $1.50 cents (5/22)

Entry $46.75 (5/15)

MDR - $67.01 - McDermott ** No Stop **

McDermott finally felt the heat and dipped to just under $62 as one of the last holdouts of the energy/commodity slaughter. The rebound was swift and it appears to be readying a breakout over resistance at $67.


Company Info:

J. Ray McDermott is a leading provider of engineering, procurement, construction, and installation services for offshore oil and gas field developments worldwide. McDermott International, Inc. is a leading worldwide energy services company. McDermott's subsidiaries provide engineering, construction, installation, procurement, research, manufacturing, environmental systems, project management and facility management services to a variety of customers in the energy and power industries, including the U.S. Department of Energy.

I hate to recommend a Jan-2007 LEAP because the time is short but the Jan-2008 LEAPS are very expensive for some investors. I am going to list both for reference.

Position 2007 $70 LEAP Call OYZ-AN @ $8.50
or
Position 2008 $75 LEAP Call YAE-AO @ $12.50

Insurance put:
Position: June $60 Put MDR-RL @ $1.25 (5/22)

Entry $66.05 (5/18)

TRN - $63.15 - Trinity Industries ** No Stop **

Trinity traded in a $4 range all week. Resistance is $64 and holding. Our other railroad car pick stopped out (RAIL) on the decline in the transportation sector. As long as TRN holds over $60 we should be ok.

Company Info:

Trinity Industries, Inc. is a diversified industrial company that provides a variety of products and services for the transportation, industrial, construction and energy sectors. The Company is engaged in the manufacturing and marketing of railcars, inland barges, concrete and aggregates, highway products, beams and girders used in highway construction, weld pipe fittings, tank containers and structural wind towers. In addition, it leases railcars to customers through a captive leasing business, Trinity Industries Leasing Company. Trinity has five business groups: Rail Group, Railcar Leasing and Management Services Group, Construction Products Group, Inland Barge Group and the Energy Equipment Group.

(No LEAPS)
Position: October $70 Call TRN-JN @ $4.00 (currently $3.20)

Insurance put:
Position: June $60 Put TRN-RL @ $1.00 (5/22)

Entry $64.88 (5/18)

PTR - $109.52 - Petrochina ** No Stop **

Tough week for Petrochina! Monday's open saw it fall from $112 to $101 as the overseas indexes imploded overnight on Sunday. We were triggered on the protective put at nearly the worst possible minute and at more than double the closing ask the night before. I am going to recommend closing the put to preserve premium and we will reinstate if we get another dip on PTR.

Close the insurance put June $105 PUT PTR-RA currently $2.00 if PTR trades over $110 on Tuesday.

Insurance put: Repurchase June $105 PUT PTR-RA ONLY if PTR trades at $107.

Prior commentary:

Petrochina is the fourth largest energy company in the world. It is a government monopoly but it acts like an independent. PTR is aggressively acquiring leases and rapidly expanding its drilling program. It currently has over 10.9 billion bbls of proven reserves and more than 44 TCF of gas. Warren Buffet owns $2.3 billion of PTR stock. It trades at less than $12 per BOE and has a 3.5% dividend yield. PTR owns 14,000 service stations and has 2,900 franchised stations. It is majority owned by China and has unlimited capital for expansion if China likes the deal. I expect several acquisitions by PTR over the next couple years but with a $208 billion market cap and China as the owner it will not be a target itself. China would never give up control of those oil assets. PTR saw its output rise +6.3% in Q1 to 267.7 million bbls when most companies were posting declines in reserves and production. Gas output rose +35.6%. PTR owns 75% of the oil and gas reserves in China and supplies 40% of its needs. This is as close to a permanent lock on a profit as we can get given the rapid growth of China's economy.

Cramer was pounding the table on PTR on Friday saying it was not afraid to drill in communist countries, places torn apart by strife or run by two-bit dictators like Chavez or Morales. With the Chinese government and military behind it there is little chance of somebody trying to confiscate PTR assets.

Company info:

PetroChina Company Limited operates a range of petroleum and related activities through four primary business segments: Exploration and Production Segment, Refining and Marketing Segment, Chemicals and Marketing Segment, and Natural Gas and Pipeline Segment. The activities include the exploration, development, production and sales of crude oil and natural gas; the refining, transportation, storage and marketing of crude oil and petroleum products; the production and sales of basic petrochemical products, derivative chemical products and other chemical products, and the transmission of natural gas, crude oil and refined products, and the sales of natural gas.

I am using the $120 LEAP instead of the higher strikes because the dip reduced the price to a manageable level. The choice is $120 or $130 and there is only a $3.60 difference in price. Amortized over the next 18 months that is nothing. I only wanted round number strikes in case there is a stock split.

Position: 2008 $120 LEAP Call LJC-AD @ $16.20

Insurance puts:

Position: June $105 PUT PTR-RA, @ $4.20 (5/22)

Entry 5/14 $116.20

GG $30.82 - Goldcorp ** No Stop **

Goldcorp is holding in a $4 range as gold itself bounces around waiting for the commodity buyers to reappear. The dollar has been rising and that makes gold cheaper. I believe it is only temporary. We have a 2008 LEAP and a July insurance put. Plenty of time to make a decision.

Company Info:

Goldcorp Inc. (Goldcorp) is a North American-based gold producer engaged in exploration, extraction and processing of gold. The Company's primary asset is its Red Lake Mine, a gold mine in Canada. It's other operations include the Bajo de la Alumbrera gold-copper mine (the Alumbrera Mine) in Argentina; a 100% interest in each of the San Dimas gold-silver mine (the San Dimas Mine); the San Martin gold-silver mine (the San Martin Mine); the Nukay gold-silver mine (the Nukay Mine) in Mexico, and a 100% interest in the Peak gold mine (the Peak Mine) in Australia. Goldcorp also has 100% interests in the Los Filos gold development stage project (the Los Filos Project) in Mexico and the Amapari gold project (the Amapari Project) in Brazil. Goldcorp also owns approximately 59% of Silver Wheaton Corp. (Silver Wheaton), a mining company with 100% of its revenue from silver production.

Breakout trigger $36.00 hit on 5/01
Position: 2008 $35 LEAP Call LGX-AG @ $10.00 5/01

Insurance put:
Position: July $27.50 PUT GG-SY @ $1.95

Entry $36.00 (5/01)

FTO - $56.44 - Frontier Oil Corp

FTO rebounded +$6 from its Monday lows and has moved over the resistance at $54.75. The put was entered on the gap down on Monday and now it looks like we won't need it. Expensive insurance but better safe than sorry.


Stock split: 2:1 scheduled for June 26th

FTO is a strong takeover candidate and should be very profitable since they can refine the cheaper heavy crude.

Earnings: May 8th. FTO beat the street by +20 cents at $1.02


Company Info:

Frontier Oil Corporation (Frontier) is an independent energy company engaged in crude oil refining and wholesale marketing of refined petroleum products. The Company operates refineries (the Refineries) located in Cheyenne, Wyoming, and El Dorado, Kansas, with a total annual average crude oil capacity of 162,000 barrels per day (bpd). Both of the Refineries are complex refineries, capable of processing heavier, less expensive types of crude oil, while producing gasoline, diesel fuel and other high-margin refined products. Frontier purchases crude oil to be refined and markets refined petroleum products, including various grades of gasoline, diesel, jet fuel, asphalt and other by-products. The Company focuses its marketing efforts in the Rocky Mountain region, which includes the states of Colorado, Wyoming, Montana and Utah, and in the Plains States region, which includes the states of Kansas, Oklahoma, Nebraska, Iowa, Missouri, North Dakota and South Dakota.


Breakdown trigger $56.00 hit (4/11)

Position: Oct $60 Call FTO-JL @ $6.50
Cost reduced by -60 cents 4/25. Cost = $5.90

Cost reduction play April 18th
Sell May $65 Call FTO-EM @ $2.15, exit $1.55 4/25, +.60
Stop loss $64.95
Profit stop $60.00, hit 4/25

Insurance put:
Position: June $50 Put FTO-RJ, @ $1.80 (5/22)

Entry $56.00 (4/11)

CSX - $67.32 - CSX Corp ** No Stop **

CSX lost traction with the rest of the transports but ended flat for the week. Strong support at $65-$66 and now we have insurance.

CSX is by far the best of the railroads and a rebounding Transport index should give CSX wings. We have a 2008 LEAP so I am not really worried about the dip.

Earnings: April 18th $1.06 vs estimates of 89 cents

Company Info:

CSX Corporation (CSX) based in Jacksonville, Florida, owns companies providing rail, intermodal and rail-to-truck transload services that combine to form transportation companies, connecting more than 70 ocean, river and lake ports. CSX's principal operating company, CSX Transportation Inc. (CSXT), operates the railroad in the eastern United States with approximately 21,000-mile rail network linking commercial markets in 23 states, the District of Columbia, and the Canadian provinces of Ontario and Quebec. CSX Intermodal Inc. (Intermodal) is a coast-to-coast intermodal transportation provider, an integrated intermodal company serving customers from origin to destination with its own truck and terminal operations, plus a dedicated domestic container fleet. Containers and trailers are loaded and unloaded from trains, with trucks providing the link between intermodal terminals and the customer.


Breakout trigger $60.50 hit Apr-3rd
Position: 2008 $65 LEAP Call YYD-AM @ $8.30

Insurance Put:
Position: June $65 PUT CSX-RN @ $1.20

Entry $60.50 (4/03)

BTU - $60.86 - Peabody Energy ** No Stop **

BTU continued its plunge on Monday and didn't stop until it had lost -$25 from its post Fed high at $76. It does not get much more ugly than this. After rebounding +$9 for the week BTU is poised to move higher but holding just under resistance at $62. We were nailed on the protective put but at least we are protected against another drop.

Earnings: April 18th, +151% jump on +21% revenue gain.

Company Info:

Peabody Energy Corporation (Peabody) is the largest private-sector coal company in the world. During the year ended December 31, 2004, the Company sold 227.2 million tons of coal. It sells coal to over 300 electricity generating and industrial plants in 16 countries. The Company owns, through its subsidiaries, majority interests in 32 coal operations located throughout all the United States coal producing regions and in Australia. Most of the production in the western United States is low-sulfur coal from the Powder River Basin. In the West, it owns and operates mines in Arizona, Colorado, New Mexico and Wyoming. In the East, it owns and operates mines in Illinois, Indiana, Kentucky and West Virginia. The Company owns four mines in Queensland, Australia. Most of the Australian production is low-sulfur, metallurgical coal. In addition to the mining operations, the Company markets, brokers and trades coal.

Position: 2008 $55 LEAP Call LLW-AK @ $9.50
Cost increased 4/19 by +1.30 to $10.80
Cost increased 5/01 by +1.70 to $12.50

Insurance put:
Position: JUNE $52.50 PUT BTU-RT, @ $2.70 (5/22)

April 8th covered call:
Sell June $60 Call BTU-FL @ $2.20, stopped $3.50, 4/19, -1.30

April 24th covered call:
Sell Sept $70 Call BTU-IN @ $4.20, exit $5.90 5/01 -1.70
Set stop loss at $67.50, hit 5/01
Set profit stop at $58.00, changed to 58.50 4/30

Entry $48.00 (3/07)

XLE - $55.17 - Energy Select SPDR ** No Stop **

Like the rest the XLE rebounded to hold at resistance from the prior week. It is still -$5 under its prior highs but we saw a good support test at the 200-day at $52.50. The worst should be behind us.

SPDR Info:

The Energy Select Sector SPDR Fund (the Fund) is an index fund that seeks to replicate the total return of the Energy Select Sector Index of the Standard & Poor's 500 Composite Stock Index (S&P 500 Index). During the fiscal year ended September 30, 2004 (fiscal 2004), the Fund had a return of 48.27%, as compared to the Energy Select Sector Index return of 48.91% and the S&P 500 Index return of 13.87%. The Fund invests in industries, such as energy equipment and services, and oil and gas services, among others. In fiscal 2004, its top five holdings were Exxon Mobil Corp., ChevronTexaco Corp., ConocoPhillips Inc., Schlumberger Ltd. and Occidental Petroleum Corp.

Breakdown of components of the XLE:
http://www.spdrindex.com/spdr/index.cfm?story=composition&symbol=XLE

Position: 2007 $55 LEAP Call OJW-AC @ $4.10

Entry $52.00 (3/07)

RAIL - $63.13 FreightCar America ** Stopped $63 **

Last week I recommended letting RAIL ride and removing the stop at $63. Unfortunately I forgot to remove it from the RAIL headline above. If you read the commentary and followed the instructions you should still be in the play. However, by not removing the headline stop I can't continue with it in the newsletter. Several readers emailed in confusion and I apologize.

For record keeping purposes RAIL is being removed.


Earnings: April 26th. +1.67 EPS compared to .22 in 2005.

You may think RAIL is not an energy play but you would be wrong. 78% of its rail cars are for coal. You may remember in mid 2005 the coal companies saw a period of soft earnings because there was not enough rail capacity to get their coal to market. RAIL saw a +120% increase in orders in Q4 and saw a backlog of nearly 21,000 cars at year-end. That backlog fell to nearly 18,000 cars at the end of Q1 but still substantial. As more energy products are shipped from Canada and into Mexico the demand will continue to grow.


Company Info:

FreightCar America, Inc. is a manufacturer of aluminum-bodied railroad freight cars (railcars) in North America. The Company specializes in the production of coal-carrying railcars, which represented 78% of its deliveries of railcars, during the year ended December 31, 2004, while the balance of its production consisted of a broad spectrum of railcar types, including aluminum-bodied and steel-bodied railcars. It also refurbishes and rebuilds railcars and sells forged, cast and fabricated parts for all of the railcars that the Company produces, as well as those manufactured by others. Prior to April 1, 2005, the Company was named FCA Acquisition Corp. On April 1, 2005, a former parent company, also named FreightCar America, Inc., merged with and into FCA Acquisition Corp., with FCA Acquisition Corp. being the surviving corporation. In connection with the merger, FCA Acquisition Corp. changed its name to FreightCar America, Inc.

Currently the longest option you can buy is the September series.

Position: Sept $80 Call RQN-IP @ $4.00, exit on stop @ 1.40

Entry $67.00 (3/07)

CCJ - $41.89 - Cameco ** No stop **

Cameco was one of the best performing stocks last week. After dipping to $35.19 at Monday's capitulation open it rebounded to close just under $42 on Friday. That was a +19% rebound! It is only -$3.50 from a new historic high. Finally life has returned.

Earnings: April 30th. 32 cents vs .07 cents in prior qtr.

Original Play Description:

We were triggered on the breakout at $72.50 on Monday and again on the $67 breakdown target on Wednesday. Each trigger was for a 1/2 position giving us a full position with an average cost of $9.80 each. That turned out to be the closing price on Friday so if you missed either opportunity you did not miss anything. We are going to add another full position after CCJ splits on Feb-23rd.

This is my best single play in the list. Cameco just announced record earnings and raised their forecast for 2006 and beyond. They projected a +40% rise in revenue and a rise in margin from 23% to 28% for 2006. At the same time they announced a 2:1 split for Feb-23rd on the NYSE. They also raised the dividend to 32 cents from 24 cents payable on April 13th.

They also announced they were buying Zircatec for $108 million. Zircatec is a maker of nuclear fuel bundles for Canadian designed heavy water reactors. They said the acquisition would moderately boost 2006 earnings assuming no material changes in operations.

The combination of events including the purchase of Zircatec caused the stock to plunge from its all time high of $82.15 on Feb-1st to close at $69.97 on Friday Feb-3rd. That level remained support for the entire week through Feb-10th.

Company Info:

Cameco Corporation is engaged in exploring, developing, mining and milling uranium ore to produce uranium concentrates. The Company is also a commercial converter of uranium concentrates (U3O8) to UF6 (uranium hexafluoride), as well as a supplier of services to convert uranium concentrates to UO2 (uranium dioxide). Cameco, through its subsidiaries, has a 31.6% limited partnership interest in Bruce Power Limited Partnership, which operates six nuclear reactors in Ontario, Canada. Cameco also owns 53% of Centerra Gold Inc. (TSX: CG), a growth-oriented gold mining and exploration company engaged in the acquisition, exploration, development and operation of gold properties in Central Asia, the former Soviet Union and other emerging markets.

Pre-split entries:
Breakout target $72.50 hit
Position: 2007 $80 LEAP ZBK-AP 1/2 position @ $10.60 (2/06)

Breakdown target $67.00 hit
Position: 2007 $80 LEAP ZBK-AP 1/2 position @ $9.00 (2/08)

Pre-split average cost: $9.80
Post split position: (4) 2007 $40 LEAP ZBK-AH @ $4.90
Cost reduction: -.75 on 3/21, cost now $4.15

Additional Position: 2008 $40 LEAP LTA-AH @ $9.00 on 2/25.
Added after the 2:1 split on 2/24

Put insurance:
Position: June $35 PUT CCJ-RG @ 1.20 (5/22)


Monday Mar-20TH cost reduction strategy:
Sell the June $40 call CCJ-FH @ $1.75
Set a profit stop at $33.50, hit 3/21, exit $1.00, +0.75
Set a stop loss at $39.95

HAL - $73.59 - Halliburton ** No Stop **

HAL tested support at $68.50 three times over the last week and held every time. This is just above the 200-day average. Resistance at $74 is also holding as we await the split in late June. There is no word on the timing of the KBR IPO but I have a call into investor relations. There is no new news that I can find. I suspect other investors are getting bored waiting for something to happen.

2:1 split scheduled for June 23rd.

PAR on HAL is $100 after the spin off.

Earnings: April 21st, 91 cents

Play description:

Halliburton is planning on spinning off KBR, its construction and engineering unit. This should produce a significant bounce in HAL stock. (KBR stands for Kellogg, Brown and Root) HAL is a very strong service company and should soar when it is no longer held in check by the sins of KBR.

2:1 Split scheduled for June 23rd.

Company Info:

Halliburton Company is an oilfield services company, and a provider of engineering and construction services. The Company provides services, products, maintenance, engineering and construction to energy, industrial and governmental customers. Its six business segments are Production Optimization, Fluid Systems, Drilling and Formation Evaluation, Digital and Consulting Solutions, collectively the Energy Services Group, and Government and Infrastructure, and Energy and Chemicals, collectively known as KBR. In August 2004, the Company sold its surface well testing and sub-sea test tree operations to Power Well Service Holdings, LLC. In January 2005, the Company emerged out of the chapter 11 proceedings and can operate the businesses without Bankruptcy Court supervision.

Current position: 2007 $80 LEAP Call VHW-AP @ 11.25

Original Position: 2007 $85 LEAP Call VHW-AQ @ $9.80
Monday March 20th: Position change
Sold the 2007 $85 LEAP VHW-AQ, exit $4.25.
Bought the 2007 $80 LEAP VHW-AP, entry $5.70.

Our adjusted cost in the 2007 $80 LEAPS is now $11.25
The strike is lower and will split into (2) $40 LEAPS @ $5.63

Insurance Put:
Position: July $65 Put HAL-SM @ $2.00 (5/22)


Entry $79.00 (2/06)

VLO - $61.37 Valero ** No Stop **

VLO ended the week with a $3 gain but not before taking a -$4 drop to trigger the insurance put from last week. We got a nice test of the 200-day average and a nice rebound. We should be good to go as long as gasoline demand over the holidays remains strong.

Earnings: April 25th, +60%

Company Info:

Valero Energy Corporation (Valero) owns and operates 18 refineries having a combined throughput capacity, including crude oil and other feedstocks, of approximately 3.3 million barrels per day. Valero produces environmentally clean refined products, such as reformulated gasoline (RFG), gasoline meeting the specifications of the California Air Resources Board (CARB), CARB diesel fuel, low-sulfur diesel fuel and oxygenates (liquid hydrocarbon compounds containing oxygen). It also produces conventional gasoline, distillates, jet fuel, asphalt and petrochemicals. Valero markets branded and unbranded refined products on a wholesale basis in the United States and Canada through a bulk and rack marketing network. It sells refined products through a network of more than 4,700 retail and wholesale branded outlets in the United States, Canada and Aruba. Valero's retail operations include approximately 1,500 company-operated sites that sell transportation fuels and convenience store merchandise.

Position: 2007 $60 LEAP Call VHB-AL @ $6.60
1/30 Cost reduced by spread on put/call -0.90, now $5.70
2/06 Cost reduced by -1.00 on closed call, now $4.70
2/09 Cost reduced by -3.10 on closed $57 put, now $1.60
2/14 Cost increased by +0.15 on exited Mar-$45 put, now $1.75
4/11 Cost increased by +1.20 on CC stop loss, now $2.95

Insurance put:
Position: June $55 PUT VLO-RK @ $1.50 (5/22)


Monday Mar-20TH cost reduction strategy:
Sell the June $67.50 call ZPY-FR @ $1.25, exit 2.45, 4/11, -1.20
Set a profit stop at $53.75
Set a stop loss at $64.50

Monday Feb-13th
Set profit stop on March $45 put at $48 on VLO, exit $1.05 2/14
Insurance Put: March $45 Put VLO-OI @ $1.20
Put entered on 12/27 when VLO traded at $51

Monday Feb-6th:
Close the March $65 Call VLO-CM @ $1.50, +1.00
Set a profit target on the March $57 put at $54, exit $4.70 (2/9)

Monday Jan-30th:
Sell March $65 Call VLO-CM @ $2.50 bid
Buy March $57.50 Put VLO-OY @ $1.60 ask
Set a stop loss on the call at $64. Profit stop at $54
Set a profit stop on the put at $52.

Entry $52.30 (12/16)

 


Leaps Trader Watch List

Coal Is the New Black Gold

I put Arch Coal on the watch list without a trigger price. I would like to buy it cheaper and with natural gas prices moving lower we may get the chance. I will send an email update when I think it is safe to enter. We may miss the breakout if it occurs but the gas glut is a factor to watch. Better safe than sorry.

Check your email during the week for updates on ACI and any other stocks that become targets.

Jim Brown
 

Dropped Entries

None


New Watch List Entries
ACI
$47.43
Arch Coal Inc.

Current Watch List

ACI - $47.43 - Arch Coal Inc

Arch Coal, Inc. operates as a coal producer in the United States. The Company's primary business is the production of steam and metallurgical coal from surface and underground mines throughout the United States, for sale to utility, industrial and export markets. Its mines are located in southern West Virginia, eastern Kentucky, Virginia, southern Wyoming, Colorado and Utah. As of December 31, 2005, it operated 21 mines, and controlled approximately 3.1 billion tons of proven and probable coal reserves. During the year ended December 31, 2005, the Company sold approximately 140.2 million tons of coal. The Company has three business segments, which are based on the low-sulfur coal producing regions in the United States, in which the Company has operations. These segments are the Central Appalachia region, the Powder River Basin and the Western Bituminous region. On December 31, 2005, the Company sold its 100% interest in Hobet Mining, Inc., Apogee Coal Company and Catenary Coal Company.


ACI appears to be coiling for a breakout over resistance at $48-$48.50. I would like to buy another dip but with natural gas prices falling it will pressure coal stocks. Rather than put a trigger on ACI I am going to send an update when I think it is safe to enter. I plan on using the call option below. ACI has LEAPS but the 2008 strikes are very expensive. January 2007 is still seven months away and gives us plenty of time.


No trigger: Wait for newsletter confirmation to enter.

Buy Jan $55 Call ACI-AK currently $4.10
 


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