Globalsantafe Corp. (GSF)
(1/8/07)

We're looking to play a short to near-term opportunity in GSF, an oil service stock.  Like the OSX index, the stock has gotten pretty oversold, and while not excessively bearish, market sentiment suggests a move of $2-$6 is possible to ease some near-term extremes.  Oil futures and the XOI index also appear ready for at least a relief rally.

The stock fell from a high of 64.50 on December 13, following a 9-wave advance from October.  Wave A of the decline appears to have completed with a 54.62 low on January 5.  If correct, a Wave B rally should follow, most likely to take the form of a zigzag.  A simple 38.2% retracement would see a recovery high at the 58 area, but we think a more likely target would be 60, which is the 61.8% retracement.  59.56 represents the 50% Fibonacci retracement.  Depending on how strong the recovery, 62.39 represents the 78.6% retracement.  These are all therefore potential rally tops.  We would use a break of 56.75 as an entry, and limit our risk to a stop at 54.

For an option play, you can consider the April 2007 $57.50 Call (symbol GSFDY), currently selling for $4.30 with the Delta at 0.53.  

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