The Intra-Day Volatility Continues...

By Ann Sosnowski, Sara Nunnally and Bryan Bottarelli

Plus... Argentine Energy Crunch: The Race Is On...

Diligent Investor
While private equity investment may be far from reaching 2000 levels (although it’s hard to gauge, since private equity investments practically doubled from 1999 to 2000 to $104.4 billion), the overwhelming interest in private equity IPOs could be a direct indication of another boom and bust private equity cycle.

Material Profits
This could just be the beginning of an era of consolidation and a possible change in strategy for the Argentine government.

Trading Tactics
When you witness such volatile intra-day swings like this, the market is telling you that both the bulls and the bears are confused as to the market’s next major directional move.

Private equity is exactly what it sounds like: investment monies made available to private companies or investors. Investing in private equity is not a poor man’s game: you’ll need to start with at least $250,000 to even get a seat at the table.

As I stated on Ken Brown’s radio show in Delray, Florida yesterday on WSBR, the rash of recent private equity companies going public could indicate a top in the market as a whole.

Between 1996 and Y2K, more than 22,300 private equity deals were struck, totaling almost $204 billion, half of which occurred in the year 2000 alone.

After the market crash from 2000 to 2002, that dropped the Dow Jones Industrial Average down 35% and the S&P 500 down almost 50%, private equity deals balanced out to their late 1990’s number.

Now they’re increasing again. From 2003 to 2006, venture capitalist (aka private equity) deals have increased their numbers by 25% to 3,591 and their values have increased by 35% to $26.5 billion.

What’s more important than the number of deals being struck is the increasing value they have. Compared to the first quarter of 2006, the first quarter of 2007 saw a decrease in deals, but a 16% increase in total investments.

While private equity investment may be far from reaching 2000 levels (although it’s hard to gauge, since private equity investments practically doubled from 1999 to 2000 to $104.4 billion), the overwhelming interest in private equity IPOs could be a direct indication of another boom and bust private equity cycle.

As you know from my past articles, Fortress Investment Group (FIG:NYSE), the first private equity company to go public) is down 37% from its February IPO.

And while Blackstone Group (BX:NYSE) had an amazing first-day show on its IPO this past Friday, moving from $31 per share to $38 per share in one session, the stock is trading, only two days later, back below its offer price at $30.95 per share.

It’s customary that IPO stocks start off strong and drop down to the value that the market believes they should be valued at, instead of relying on the value that the underwriters pin on it. But two private equity stocks a trend does make, and in my opinion, could be an early warning sign of a soon-to-be top and fall in venture capitalist investing.

After all, there are only so many companies that will agree to be taken private.

Even though it sounds like a private equity company going public erodes the high-risk factor of investment, remember that the companies these private equity firms hold in their funds are also private, and it’s hard to gauge their success overall.

If you have money that you can afford to lose, investing in Blackstone and maybe even FIG on a short-term rise could be profitable. But if you’re a conservative investor, and can’t incur the risk, stay away from Blackstone and even a possible upcoming IPO from Kohlberg Kravis Roberts.

Argentina is experiencing one of the worst winters on record, and it’s running out of power. In fact, there’s a severe natural gas shortage that’s causing many industrial plants to cut back on production.

This immediate problem has been hampered by the government’s price controls, which have stalled new investments. Also, natural gas imports from Bolivia have been well below Argentina’s needs. In fact, of the 7.7 million cubic meters a day it needs, the Bolivian pipeline is providing only 4.6 million cubic meters.

This lack of supply has led to lower pipeline pressure, which, in turn, is leading to decreased production capacity. One industrial plant, Petroquimica Cuyo in Mendoza, is operating at only 20% capacity.

Recently, Brazil has signed an agreement with the beleaguered country to provide 700 MW of energy between June 1 and September 30, 2007. This influx of power will help Argentina respond to peak power demands.

But it needs more, and this could be just the beginning of an era of consolidation and a possible change in strategy for the Argentine government.

One such instance is the news that Spain’s Repsol (REP:NYSE) could be selling 45% of its Argentine subsidiary, YPF. The major buyers? Local companies and the Argentine stock market.

Another deal is the purchase of a 620 MW thermal plant near Buenos Aires. Pampas Holdings (PAM:Brazil) spent $85 million to acquire the plant.

I told you on June 8 that Globeleq was selling a bunch of its Latin American power assets… to raise capital for other investments.

It might be a good buy to get in on this Argentine power crunch, and the problems in Bolivia that are exacerbating the situation. It wouldn’t surprise me a bit to hear about several new “power plays” in the region.

In fact, in mid-June, the Argentine government announced it was holding an auction for the construction of a pipeline to bring new Bolivian natural gas imports to the country.

As I noted in that Globeleq article, there are still a number of opportunities ripe for flipping.

This week we’re faced with a market that has been experiencing some very wild intra-day swings. On Monday, for example, the Dow was trading 125 points higher in the morning before surrendering all of those gains by midafternoon (and actually traded lower by 40 points at one point).

This intra-day volatility continued today, as the Dow traded lower in the morning before shooting up 80 points just prior to 11:00 CT.

When you witness such volatile intra-day swings like this, the market is telling you that both the bulls and the bears are confused as to the market’s next major directional move.

As a result, we have indecisive trading patterns that spark quick periods of upside and downside action. In an environment like this, the best tactical move is to play both calls and puts -- and that’s exactly what Adam and I are doing in today’s newest WOW alert.

Starting with the call side, we’ve had success playing the major diversified Aerospace and Defense segment, so our upside play offers WOW readers an opportunity to make 96% over the next 8-12 weeks.

Over on the put side, WOW charting indicates a bearish forecast on the financial sector, so our downside put play offers WOW readers another opportunity to make 98% over the next 8-12 weeks.

The combination of the defense/aerospace sector calls and these financial sector puts allows WOW readers to use the market’s intense intra-day volatility to lock in gains no matter what direction the markets are headed that day (or even that hour).

While a choppy market causes headaches for most investors (who are only long or who are only short), the beauty of options is that you can make money off an upside in a downside market -- sometimes coming in the same trading session!