Hurricane-Proof Your Investments
The market sank yesterday, but the selling pressure was hardly strong, or unexpected. Volume levels were naturally high. Not only did news that Steve Jobs resigned raise the volume for AAPL, but Warren Buffett pledged $5 billion to the struggling bank stock BAC. Both announcements were huge news for each company (BAC was momentarily up 15%), and both of their stocks happen to be some of the larger index components.
Yesterday morning I mentioned the two hurdles SPX faced. First, was 1175 resistance area. Second was the resignation of Steve Jobs and potential for a large decline to AAPL.
Surprisingly, AAPL held up very well yesterday and only closed a fraction lower as opposed to down 4%, or more. But SPX still could not overcome 1175 resistance in the near term, which is okay.
Over the past few weeks, the market has consistently moved 3% in a day. The market does not typically move this quickly. Resistance and support levels are generally respected on a daily basis, and only on a unique occasion will two or three be lost in a session - and rarely will a major area of support or resistance be lost in a session. But over the past month, the market has been able to chop through four or five support or resistance zones in hours.
The strong selling pressure experienced yesterday around 1175 is normal, in a normal market. Now that the bulls tested that level, SPX should consolidate. Think of consolidation as a brief pause in a workout. Although your workout may only be half completed, in order to finish the remaining portion, you need to take a break, get some water, dry off, whatever. The same thing applies to trends. A trend needs to take pauses and consolidate from time to time in order to gather the strength needed to hit a price target.
In some instances consolidation is a rapid move lower that quickly rebounds. Although in the majority of cases, consolidation is a gradual push lower to a support zone, and in our present scenario that support zone is 1155.
If the 1155 support area does not hold, then we could be looking at a sharper pull back to 1131 support. At this point, it's all up to Ben Bernanke. Today Ben Bernanke will speak after a week of economic discussions in Jackson Hole.
Last year, around this time, Ben Bernanke expressed the desire for QE2 following the Jackson Hole meetings. And with the market once again in disarray, and the economy likely not expanding as rapidly as hoped for, it's possible the Fed will come up with another stimulus plan for the U.S. economy. As it stands right now, most investors are not expecting QE3, myself included, but not many analysts had expected QE2 either. If Ben Bernanke does provide monetary stimulus again, it would be a major boost for the market, oil, gold and silver.
We opened one trade this morning, but prior to that we only had one position AONE in the TradeMaster book. Today I took a long position in a stock that will benefit from the hurricane. I don't do this often, but a situation (Hurricane Irene) of peril presents itself, and infrequently creates bullish investment prospects.
As many of you are aware there is a strong hurricane likely to smash into the east and southeastern coast of the U.S. this weekend.
I am not a weather expert, but the "weather experts" have predicted that this hurricane will be strong and potentially highly damaging. In fact, NYC has prepared evacuation zones at a scale not seen in years.
In the majority of geological disasters, the proper way to trade is to be bearish on insurance and financial companies, and in major disasters (tsunami Japan) you should get long gold and the local currency.
But in a hurricane there is one bullish alternative; to find out that stock, and many more winning stocks take a free trial of TradeMaster Daily Alerts.
