Tuesday, January 19, 2010

Basic Material Stock Stats tell the Story

Generally, at the beginning of the year, I design a number of investment portfolios; some geared for $100,000 portfolios and others for $1,000,000. Although I am a technician by trade, when looking at stocks that I want to discuss here, or refer to those interested, I have to know my stuff, and that means looking at the fundamentals.

I have to admit, that I did not design stock portfolios this year and the reason is, I was unable to find high quality stocks that presented any kind of value. Just take a look at the table above. The stocks represented here are industry leaders! All members of the Basic Materials sector. PE's are high! Very high. The stocks are now awaiting the economy to catch up and provide the earnings to justify high prices. Perhaps Transocean (RIG) is the only "cheap" stock in the group, despite having gained more than 10% in as many days this year. RIG continues to advance today, up another 1% as I write.

BASIC MATERIALS are not the only "expensive" stocks. Virtually every industry I reviewed in every sector looked the same. But prices continue to rise and a review of momentum across sectors and countries show that stocks are still headed higher. But this could be and probably is, a trap. There are other ways to make money than to bet on the direction of a stock or market. In uncertain markets such as this, I like trading the volatility by selling options. I generally stay far out of the money so that if the underlying instrument does go through my limit, I wind up buying or selling something at an extremely advantageous price. Most of the time, I am making sure that volatility is declining and as a result, options expire worthless.

If you are interested in seeing some actual trades, move on to Current Options Trades to see what I am up to.

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