By Nigam Arora
My sympathies go to those who have been hurt or displaced by hurricane Harvey. But even in the middle of this tragedy, the world will go on and, soon, rebuilding will begin. No wonder I am getting an inordinate amount of requests from investors regarding stocks that are affected by the hurricane.
The basic principle
For investors, the basic principle to understand is that everything is temporary. Stocks that fall tend to recover. Stocks that rise tend to give up some of their gains. Hurricanes typically don’t create many situations for investments, but many short-term trading opportunities do arise.
How to trade
Historically, insurance stocks recover after a brief dip. The reason is that insurance companies often succeed in raising rates after storms.
To be consistently successful at a large number of trades over a long period of time, traders must look for good setups and refrain from overtrading.
The chart shows that Travelers stock has fallen, but it doesn’t present a good trading setup at this time. A good setup would be if the relative strength index (RSI) drops below 20 on heavy volume and then tries to recover. Such an occurrence is marked on the chart.
This is the kind of setup that is needed on most hurricane-related stocks to trade on the long side. For trades from the short side, the setup is similar, but look for a reversal of RSI from about 80.
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Here is a list of stocks that may present trading setups over the coming days.
• Insurance stocks such as Progressive /zigman2/quotes/202894679/composite PG +0.72% and XL Group .
• Engineering and construction firms such as Fluor /zigman2/quotes/203795934/composite FLR -0.99% , Quanta Services /zigman2/quotes/203420082/composite PWR +2.34% , Aecom /zigman2/quotes/204198156/composite ACM -0.05% , MasTec /zigman2/quotes/207965492/composite MTZ +0.43% and Chicago Bridge & Iron
• Refineries such as Valero /zigman2/quotes/200735463/composite VLO +1.07% , Andeavor (formerly Tesoro) , Marathon /zigman2/quotes/209634297/composite MPC +1.62% and Phillips 66 /zigman2/quotes/207448059/composite PSX -0.0093% .
• Building-material stocks such as Beacon Roofing Supply /zigman2/quotes/200347023/composite BECN +0.58% , Eagle Materials /zigman2/quotes/207732987/composite EXP -0.10% , USG and Owens Corning /zigman2/quotes/202113551/composite OC +0.30% .
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. All recommended positions are reviewed daily at The Arora Report.
Nigam Arora is an investor, engineer and nuclear physicist by background, has founded two Inc. 500 fastest-growing companies, is the developer of the adaptive ZYX Global Multi Asset Allocation Model and the ZYX Change Method to profit from change in trading and investing. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.