How to protect your portfolio from Hurricane Florence

My hopes and prayers are that Hurricane Florence does not cause much damage. Still, investors need to protect their portfolios.

And there might even be trading opportunities if share prices get out of whack.

As a result, consider the following three scenarios:

• Damage is less than expected.

• Damage is in line with expectations.

• Damage is worse than expected.

Let’s explore with the help of a chart.

Read: Why trip insurance may not help if Hurricane Florence ruins your cruise vacation

Chart

Please click here for the annotated chart of Lowe’s LOW, +1.01%  stock.

Please note the following:

• Lowe’s is essentially a large hardware store. It is already benefiting as people rush to buy supplies to deal with the hurricane. If the damage is severe, the stock may gap open on Monday. On the other hand, if the damage is less than expected, the stock may gap down on Monday.

• The chart shows the buy signal The Arora Report gave recently in anticipation of the hurricane for a trade-around position. The position is already profitable.

• A trade-around position is a short-term position around a long-term core position.

• The long-term core position was built at an average price of $81.85. The chart shows Arora buying for the long-term position. The long-term position was built using the evergreen strategy of buying good companies when their stock prices drop due to temporary factors. As the temporary factors go away, the stocks often not only recover but go to new highs. This is exactly what has happened with our spot-on call on Lowe’s.

• The chart shows the volume is low. This indicates there is no conviction. For this reason, the trade-around position is a very short-term trading position.

• The relative strength index (RSI) on the chart shows divergence. In plain English, this means that RSI is falling as the stock price goes higher. This is a negative.

• The chart shows a gap up on good earnings and projections.

• The chart shows a breakout from a bullish ascending pattern.

• The plan is to at least take partial profits into the strength on the trade-around position even before the damage is known, and raise stops on the remaining. With this strategy, the position will be profitable irrespective of which one of the three scenarios described above occurs. When appropriate, we will give a new signal to our subscribers to accomplish this.

Similar reasoning can be used to trade other scenarios. The same reasoning also applies to the stocks listed below. If the damage is less than expected, the pre-hurricane moves will reverse. This will provide short-selling opportunities. In short-selling, money is made by betting on stocks falling. If the damage is much worse than expected, the current moves may continue.

Ask Arora: Nigam Arora answers your questions about investing in stocks, ETFs, bonds, gold and silver, oil and currencies. Have a question? Send it to Nigam Arora.

Positive implications

There are positive implications for the following stocks:

Generator manufacturer Generac Holdings Inc. GNRC, -0.28%

Home-improvement stores such as Home Depot HD, -0.18% and Lowe’s.

Rental-car companies such as Avis Budget Group CAR, +0.71% and Hertz HTZ, -0.64%

RV manufacturers such as Winnebago Industries WGO, +1.91% and Thor Industries THO, +4.48%

Building materials such as Beacon Roofing BECN, +0.61% Owens Corning OC, +0.91% PGT Innovations PGTI, -8.33% and JELD-WEN Holding JELD, +2.18%

Equipment-rental company United Rentals URI, +1.26%

Negative implications

There are negative implications for the following stocks:

Insurers such as Progressive Corp. PGR, -0.73% Travelers Cos. TRV, +0.92% Allstate Corp. ALL, +0.95% and insurance ETF KIE, +1.08%

Cruise lines such as Royal Caribbean Cruises RCL, +2.73% and Carnival Corp. CCL, +1.99%

Airlines such as American Airlines AAL, +0.66% United Continental Holdings UAL, +0.84% and JetBlue Airways JBLU, -0.21%

Utilities such as Duke Energy DUK, -0.55% and Scana Corp. SCG, -0.03%

Concrete and aggregate companies such as Summit Materials SUM, +0.74% Vulcan Materials VMC, +1.38% and Martin Marietta Materials MLM, +0.45%

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.

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