Verasun Energy Corp. (VSE)
(10/15/07)

VSE is one of the Ethanol companies that underwent a huge correction after the Ethanol bubble burst last year.  Both VSE and Pacific Ethanol (PEIX) faced similar huge declines, but I like VSE's chart a little better, since it appears to have put in a final low.  PEIX may have another left, but a bottom soon should minimally offer a good recovery rally.  We might therefore revisit it later.  For now, we think VSE is the better play.  

We can count a 7-wave decline pattern in VSE that shows signs of having bottomed on October 3.  The rally that emerged from its 9.75 low, to a high of 12.25 on Oct. 11, is countable as the first wave in a recovery pattern.  9.75 is therefore key support for this outlook, and a stop can be set just below to limit risk.  The first wave pattern appears to have ended, and the current pullback is counted as a second wave.  The pullback has support at 11.00 and 10.45.  12.80 is the 14.6% Fibonacci retracement, which is very low level Fibo resistance, so if our outlook is correct, then the stock should experience a stronger retracement.  14.70 is .236 resistance, and 17.77 is .382 resistance, which we consider near-term targets.  If a bottom of more substance has been made, then it offers the potential for intermediate term retracements at 20.17 and 22.73.  Unless you are willing to ride out pullbacks, a conservative entry might await a full break through 12.80, with immediate overhead resistance at 14.70 and 15.46.

If our plan works out, this would offer a nice options trade, given moderate volatility being reflected in the pricing.  We're looking at the March 2008 $12 Call (symbol VSECV), currently selling for $1.45 with a good Delta of 0.55.  

©Copyright 2007 Tony Carrion.  All content presented is the exclusive property of Market Harmonics. com, which is owned & operated by T. Carrion & Co., LLC, and may not be duplicated or distributed without the express written consent of the author.