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Smart Stock Investing: Market volatility spells trading opportunity

Posted February 13, 2008

'Buy insurance against major declines by arranging a staggered set of put options against the major markets that are very exposed to the declines.'  – J. Christoph Amberger, president of TFN

Baltimore – (TFN): The following was taken from the transcript of this week's TFN Smart Trading Action Alert video featuring J. Christoph Amberger. Watch this video.

Laura Cadden: If world market performance in January is any indication, we’re in for a volatile trading year. The first two weeks of 2008, the Dow Jones Industrial Average lost 1,500 points, regaining over 1,000 in the second half of the month. The NASDAQ plunged over 10 percent before rebounding. Asian and European markets experienced sharp, protracted drops and equally dramatic rises. Consider the Chinese CSI 300 Index, which tracks yuan-denominated A-shares listed on China’s two exchanges. It rose 8.3 percent in a single day.

Is it time to throw in the towel and withdraw from the market entirely? My guest today is J. Christoph Amberger, former executive publisher of the Taipan Group, and now president of TFN.

Christoph, what do you recommend TFN viewers to do in this situation?

J. Christoph Amberger: Well, I think that pretty much depends on your outlook. The consensus appears to be that we’re in for a recession, a recession that can be quite protracted, if you believe some of the commentators. And yet, there are plenty of editors of pundits who are bullish on international stocks, international markets, international currencies. I think right now we’re in a period of a certain logical disconnect.

Laura Cadden: Explain what you mean by a "logical disconnect".

J. Christoph Amberger: Well, pundits like to blame the current economic situation on U.S. spending, U.S. debt and U.S. consumption. Typically what they forget is that the U.S. consumer not only spent the global economy out of the last two recessions, but it is also largely responsible for the economic rise of China and India, not to mention Russia and everyone else in between.  And it is still the largest and richest consumer market. 

Now, I imagine any drop in demand on the side of the U.S. consumer, there is no way of it not to trickle down to the economies that produce the things that are sold to the U.S. consumer, be that on credit or for cash. And the logical disconnect is simply in the lack of thinking of how a drop in demand would effect those markets and the currencies of those markets. Because what worth does a currency of a manufacturer have who no longer has his main client?

Tired of reading? Watch the financial video.

Laura Cadden: Well, you agree that right now we’re definitely in a market crisis?

J. Christoph Amberger: I think we’re seeing a grand rehearsal of a big crisis that we will probably undergo in 2009.

Laura Cadden: So you think there will be a global recession?

J. Christoph Amberger: I think the global economy is indeed in for a recession and markets are in for a major correction. It’s been very enlightening to watch the recent volatility and its effects on not only stocks but also other assets, like resources and gold, for example, currencies. And I think this situation gives us the luxury of observing what will happen in a small microcosm.

Laura Cadden: What do you think investors should do right now?

J. Christoph Amberger: Well, I think, in general, you need to take a long-term strategic view of the markets and adjust your portfolio accordingly. We are in for declining consumer spending, which means clear out your portfolio of assets that are especially susceptible to declines. That would be major retailers. It would be electronics manufacturers and, of course, car manufacturers. And really secure your portfolio. Buy insurance against major declines by arranging a staggered set of put options against the major markets who are very exposed to the declines.

Laura Cadden: So do you see opportunities for the short-term in this volatility that we’re seeing now?

J. Christoph Amberger: There is absolutely no way not to make money in a market that goes up and down 300-some points in a single day.What most investors forget is that you can make money on downward movements, and that is really what short-term trading is all about is to leverage movements upward and downward. And in that regard, any upward movement is as good as any downward movement in a market, in a particular stock, if you have the right options.

Laura Cadden: So do you have a play you can recommend?

J. Christoph Amberger: Well, I asked our options specialist, Bryan Bottarelli, up in Chicago, to come up with a strategic medium-term play on a particularly battered down asset right now that can be leveraged by options. And of course, we will be making this special report available to TFN subscribers and TFN viewers on the website, and you’re welcome to download it any time. (Click here to view this report)

Laura Cadden: Any hint about what this is?

J. Christoph Amberger: Well, I think, in general, you need to take a long-term strategic view of the markets and adjust your portfolio accordingly. We are in for declining spending, declining consumer spending, which means clear out your portfolio of assets that are especially susceptible to declines. That would be major retailers. It would be electronics manufacturers and, of course, car manufacturers. And really secure your portfolio. Buy insurance against major declines by arranging a staggered set of put options against the major markets who are very exposed to the declines.

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EDITOR’S NOTE: YOUR PRIVATE INVITATION…

If you want to begin receiving Bryan’s unique and profitable trading bulletins, then we highly recommend that you take advantage of this private invitation and join his elite Bottarelli Research trading service. For all the exciting details of this “private invitation,” just click here.

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