The Bullish Case For ADM

My recent bullish bias for ethanol producers was made evident in my post regarding Aventine Renewable Energy Holdings, Inc. (AVR) and Pacific Ethanol Inc. (PEIX). While I have sold all of my AVR July call options and half of my PEIX holdings, my bullish stance still remains for the ethanol industry.

Of the potential players within the industry, none is more dominant than Archer Daniels Midland (ADM). However, Shares have been hammered some 9% during the last three months due to deteriorating margins related to excessive ethanol supply. While Pacific Ethanol, Aventine Renewable Energy Holdings and others muscled out of their down trends on June 24 after the announcement of possible favorable legislation, Archer Daniels Midland Company (ADM) continued to slide. This apparently changed on Monday after a Bank of America analyst upgraded ADM to a buy from neutral, citing ADM's " . . . range of assets capable of storing and transporting its products to far-flung places," as a means to capitalize on the swelling market for grains and seeds.

Technicals too are in an apparent reversal, as ADM gapped through its upper descending trendline on July 2nd. Despite this favorable adjustment, the 200 DMA still looms overhead at $34.97; which could provide resistance if ADM is unable to generate sufficient volume to push through this level of overhead supply.

Click to Enlarge