The Money Map Advantage
Thursday, February 23, 2006
By Horacio Marquez
Email – #30
** Bulls Make Money, Bears Make Money, Pigs Get Slaughtered: Take Some Profits on Peabody Energy
Our last play, Peabody Energy (NYSE: BTU), is playing out beautifully. It is very unusual for me to ask you to double a position in a stock. I did this when I came to the conclusion that after our initial entry, shorts were looking for us to capitulate. Not a chance on a solid stock with solid fundamentals.
So instead, I asked you to average down your price by doubling your position. Our purchases, together with options expiration ahead of a three-day weekend, where shorts were ready to capture huge profits and some other alert market participants, notably Lehman Brothers’ energy team, that had recognized the unusual opportunity to pick up a top quality stock on sale, created a scramble to buy Peabody’s stock with a very strong appreciation.
Fundamentals?
This morning we learnt from the IFO survey in Germany that business confidence is rising beyond the market’s expectations. It showed the highest level since unification of Germany in 1990. We also learnt from Bank of Japan that deflation may be ending there.
A side story on Japan: Rents are finally getting traction. Which means that real estate prices are also bound to rise, helping the massive portfolios of the banks, of which we hold the largest: Mitsubishi UFJ Financial (NYSE: MTU). Hence, expect further strong improvement in MTU coming up. Strength in Japan’s economy also means that its zero-interest rate policy will be ending soon, which also means that the yen is bound to finally start its long-overdue rally against the greenback.
This also means that global growth is looking very good, and energy demand should continue to pick up. And recently, we got into the oversold Peabody Energy at a fire-sale price and have seen extremely strong appreciation since then. It is time to take some profits and let the rest of our positions ride. Let me explain…
This morning the U.S. government’s oil inventories reports gave us one more extra lift, as we were expecting in BTU. The stock is heading to its all-time high of $52 (adjusting for the split). And it should consolidate that level and proceed higher later. But this is happening ahead of the CBOE oil index (^OIX) and of the Energy SPDRs (AMEX: XLE). These two indexes are being weighed down by the abnormal situation in natural gas, which is grossly oversold by the temporary imbalance caused by the unusually warm U.S. winter and speculator shorts. This is not bound to continue much more, despite the fact that we are going into the seasonally weak-demand time for natural gas. The much lower prices are going to drive up demand, and inventories will come back in balance. I would not like to be short natural gas when shorts start covering.
And we are not factoring in our energy expectations the Iran situation, since Iran is now also under pressure from both Russia and China to resolve this within the IAEA framework. I expect that Iran will flinch at the end under all this pressure. If they do not, it will be upside for energy.
Back to BTU:
Please note that Peabody Energy split 2-for-1 before the market open today. So our Peabody Energy March 2006 $90 calls (BTU CR) are now the March 2006 $45.00 calls (BTU CI). These options are currently trading for $5.50.
Although BTU should soon reach new highs, using prudent risk management, let’s not get too greedy here and book some of our very nice profits. We have close to 175% gains in our BTU calls (our entry price is now $2, adjusting for the split).
ACTIONS TO TAKE:
Sell 3/4 of your position in our March 2006 $45 calls (BTU CI). Do not sell at less than 5.00. Leave the rest of it to fly. This way we will take all of our original investment off the table – plus substantial profits – and we only keep in the market a part of our profits.
Also, sell half of your Peabody Energy (NYSE: BTU) position at market price to bring your position to a normal weighting.
Enjoy and profit,
Horacio Marquez
If you have any questions, feel free to call one of our VIP Trading Services representatives at 888.570.9830 (toll-free) or e-mail: viptrader@oxfordclub.com, or contact Pillar One Advisor Greg Galloway at 800.438.3040 or 407.667.4729.
Stock & Symbol
Current Price
Comments
Peabody Energy (NYSE: BTU)
$49.71
Sell ½ of position. Sell stop is $35.
IShares Brazil Fund (Amex: EWZ)
$41.70
Buy. Sell stop is $33.79.
BHP Billiton (NYSE: BHP)
$36.93
Buy. Sell stop is $32.70.
Banco Bradesco (NYSE: BBD)
$39.99
Buy. Sell stop is $29.45.
Petrobras (NYSE: PBR)
$88.70
Buy. Sell stop is $75.47.
Mitsubishi UFJ Finan. (NYSE: MTU)
$14.11
Buy. Sell stop is $12.93.
iShares Japan Fund (AMEX: EWJ)
$13.62
Buy. Sell stop is $12.83.
Tenaris (NYSE: TS)
$156.60
Buy. Sell stop is $117.27.
MSCI Austria Fund (AMEX: EWO)
$30.59
Buy. Sell stop is $26.51.
Market Watch
NASDAQ
1528.95
0.00
SP 500
813.88
0.00
DJIA
7749.81
+89.84
As Of 6:12AM 3/26/2009
Attention Money Map Subscribers!
Money Map Report,
New China Trader
& Money Moves Alert
are now found at www.moneymappress.com
