I travel an average of 2 times a month for various reasons - business, pleasure, etc. I am doing both as I travel during this Labor Day weekend. One thing is apparent to me, which is that there are less people traveling for pleasure reasons than I have seen in the past. Let's just take a look at one sector of the economy and how this incorporates into my trading plan for the rest of 2009.



Air Travel - while first class is still full to most extents, the majority of the people who travel this class of service aren't paying for it, at least on the major carriers. They get it through upgrades, with no additional out-of-pocket costs. Middle seats are more vacant on the weekends than I have seen in the last few years. Also many people I talk to are burning through their miles in lieu of paying for their seats. Delta, American, and Continental have to be hating this. They budget the amount of miles that will be used as a percentage of revenue, and this ratio has got to be higher than what they planned. What does this mean? Lost revenue, that's what it means.

This is just the airline industry, but lots of companies that depend on the discretionary spending of the consumer are suffering. From hotel chains, to retailers, to amusement parks, people in general are cutting back their spending. So where are all of these people going for fun these days? Most are staying home for the summer and visiting the local parks and recreation, which are up in visitors tremendously.

As I am writing this, I am at the base of Stone Mountain, the largest granite mountain in the country. Its only 5pm here and the park is packed in like sardines as visitors wait for the ceremonial festivities planned for later this evening. Now, Stone Mountain is a historical park that is well known across the country. Typically, trying to get a hotel inside the park on Labor Day Weekend is impossible, even months in advance. Yet I found open rooms, booked, and stayed here on the same day this weekend. While this was great for my family on a last minute decision, I had to wonder how the Marriott was feeling about this weekend. Both of their properties on the mountain had several vacancies. Even with the perks that were included to entice overnight visitors.

Labor Day Weekend is officially the last weekend of summer, and "Stay-cationers" have set the tone as we enter into fall and soon the holiday season. They have pushed off unnecessary trips, and it's not because they like staying home, it's because the economy is worse off than the government wants us to believe. I have to imagine this same group of people will be very cautious heading into the holiday shopping season.

As a trader, I have to factor in the possibility that this market will turn and start to head down soon. I have shown you in recent articles the possibility of a pullback. Fundamentally this looks like a reality now more than ever. Even if you are a bull, you have to think that this market has come too far too fast. So how can use this information to your advantage to protect your portfolio?

The chart at the top of this article reflects a 10% -15% pullback projection from the recent highs. Ok, so let's say this happens. What can we do to hedge our portfolios if this happens? OPTIONS! You could run out and by put protection on all of your stocks, to protect everything you have. Or you could look at some correlation protection by buying puts on the SP 500. This will protect your portfolio to the extent that the overall market drops. Put premium is trading for roughly half the value that it was 6 months ago. This means its a lot cheaper for this type of insurance than it was in March. For example, 90 day at-the-money put options that were trading in March for 20 points would now be trading at roughly half this value. It's never been a better time to protect your portfolio this year than right now.

This is just one idea of what you could do if you expect a move to the downside. There are dozens of option strategies that you could take advantage of in the event of a pullback, some more risky than others. My point in this article is that things aren't as rosy as some might lead you to believe, and that the best time to be cautious is when the majority of people are not.

Happy Labor Day Weekend!

Tom Gentile
Chief Strategist
Profit Strategies Group, Inc.