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Rally Led By Builders And Energy Companies!

Member surprised by rise in market,
although typical after disasters. More
companies needed to do cleanup, problem
solving. Government taking charge as
disaster strikes Gulf. Get the latest at
TradingTrainer.com.

Hey trading team,

This is A.J. on Wednesday, August 31st with your
Trading Trainer web log. We are your home of
market insights for the serious option trader.
This web log will cover the events in the market
from today as well as prepare you for watching
the market tomorrow.

It really is amazing to me. I was talking with a
TradingTrainer.com member today and he was
initially surprised at the market rally. He said
something like, “You would think with all the
devastation for Hurricane Katrina that the market
would decline.” Traditionally, that is not the
case. Look back to September 11th, 2001. After
the initial decline, some of the best gains were
made in the weeks that followed. The war on Iraq
is another example. Wars and natural disasters
create work. They are problems that need to be
solved. In come companies to solve those
problems.

Today’s rally was led by devastated home builders
and material supply stocks as well as energy
stocks that are benefiting from the high commodity
prices of oil and its derivatives. Chock that one
up to Hurricane Katrina as well. Not only did it
create a lot of work for builders, it knocked out
oil rigs and refineries in the Gulf of Mexico
which hampers the supply of a particular commodity
that is currently feeling the effects of record
demand. What you have to remember here is that
typically it is the government that pays the bill
for wars and natural disasters. That’s versus
honest to goodness world demand for a product or
service. You have to ask yourself, the real
estate market in the U.S. is undergoing a
correction, so how can builders do so well today?
That’s because the government is now the customer.
They are in charge of putting things back together
when things fall apart. What happens in the long
term then is that we have to fund the government
in the form of increased taxes. Or, the
government can go into debt. Either alternative
acts to slow the markets. So, these short term
positive spikes like the one we saw today, caused
by a natural disaster, but it just as well could
have been caused by a war or conflict, will have a
negative impact on the market in the long term.
Just know and understand that team.

Another aspect of today’s rally was that the
Chicago PMI came in below 50 which signals a
decline in activity. That contradicts the growth
we’ve been seeing for over two years.. The blame
goes toward high energy prices. But the effect is
that investors don’t feel inflation pressures as
much when declines are being reported. The
sentiment is that the Fed will hold off from
further rate hikes till news gets better. That
speculation makes the market rally.

My portfolio of mostly options on energy stocks
rallied for the most part of the day with a slight
bump in the afternoon. The bump came when
President Bush announced that he authorized
supplementing oil supplies with those from the
U.S. strategic reserve while supply from the Gulf
has been temporarily halted. Even with that bump,
I sold my Encana Corp October 42.50 Calls for a
“return on my invested capital” of 155%. Not bad.
I think I’ll take 10% of the proceeds and treat
myself to two weeks this winter in French
Polynesia.

Team, you have to NOT be afraid to follow the
charts. You know how to protect your investments
once you are into a trade. You need to build
confidence in the charts. Even if you use the
TradingTrainer.com buffered template, the most
conservative, you would have still gained today.
Don’t suffer from analysis paralysis which is
really a cover up for your fears. Take action.
At least paper trade. Don’t let me be the one
getting rich over here alone.

Like I said, earlier, I sold my Encana October
42.50 calls at $7.40 an option when my trailing
stop was triggered after the afternoon pull back.
I closed that position with a return on my
invested capital of 155% after being in the trade
for 40 days. My EOG resources October 60 calls
closed higher at $5.60 an option. I’m just about
out of that hole with a return on my invested
capital of -10%. I’ve been in that trade for 40
days. My Pacificare Health Systems November 75
calls closed higher at $2.70 an option. I’m in
the red with a return on my investment of -7%
after being in the trade for 40 days. My
quicksilver September 40 Puts closed way down at
25 cents an option. I’m in the red with a return
on my invested capital of -84% after being in the
trade for 14 days. And my Tenaris October 105
Calls closed up at $11.80 an option. I’m in the
black with a return on my invested capital of 49%
after 5 days in the trade.

This is my plan for tomorrow. I’m going to start
the day by looking at Genentech and Valero for
possible morning purchases. I’ll also evaluate
the remaining securities in my portfolio for
possible exits. Tomorrow could be another
volatile day. There’s a lot of news hitting
investors tomorrow. Be on your toes. If it’s too
much for you; do some paper trading. Take the
edge off. But, the theme of the day is DO
something. Don’t just do nothing.

Till tomorrow, happy market watching, trading and
money making. Trading Trainer is here helping you
create your dream lifestyle.

Best regards always,
A.J.

About the Author
A.J. Brown is a full time options trader, author,
speaker and consultant. Watch him review stocks
charts on video each week, listen to his audio
newsletter where he leads you by the hand through
the end-to-end process of successful option
traders and get tips and tested strategies proven
to boost your return on your invested capital by
massive amounts in his membership site at
TradingTrainer.com today.

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