EOT Trade Alert – June 8, 2010

June 8, 2010

Trade Alert:

   Buy ENS Sep 18 2010 $22.50 Puts at $3.00 or better

Company Background:

EnerSys (ENS) manufacturers and sells industrial batteries and related products, primarily in the U.S. and Europe.

Short-Term Catalyst:

ENS just closed their 2010 fiscal year a few days ago.  Their earnings came in in-line with analyst expectations.

Here’s the problem.  Nearly half of their sales come from Europe.  And right now, investors have no desire to hold onto any stocks relying on European sales.

It’s almost a foregone conclusion the European economy is going to struggle this year. Higher taxes and lower government spending throughout the EuroZone will hurt sales in Europe (not to mention riots and debt defaults).

And a weak Euro will cut into the profitability on international sales.

I believe it’s going to be nearly impossible for ENS to meet earnings guidance in August.

On a technical basis, ENS is now in a downtrend.  It’s set two lower highs and two lower lows in the last month.

I think ENS will test the February low around $20 before it’s able to regain its footing. And it could continue falling right on through this price if the European economy begins to show more cracks.

Let’s buy puts on ENS now to profit as investors steer clear of stocks with exposure to Europe.

Trade Details:

Underlying Stock Symbol:	ENS
Current Bid-Ask Price:	$2.50 – $2.85
Option “Buy Up To” Price:	$3.00
Break-Even On Stock At Expiration:	$19.50
Maximum Risk Per Contract:	$300

Exit Strategy:

ENS is trading at $21.97 per share.  Resistance levels will be at $25.50 and again at $27.  Remember, we want this stock to move lower.  Support levels will be at $20 and $19.  Conservative investors should look to exit at the first support or resistance level. Aggressive investors may want to hold for a bigger move.

Chart:

Category: EOT Trade Alert