The Tycoon Report

How to Profit From an Over Bought Market!

A blah week for the averages and an ugly week for the NASDAQ but a great week to accumulate our favorite stocks on the cheap. We may sound like a broken record but we cannot stress enough that in a market this over bought, stocks should ONLY be purchased on pullbacks. We continue to like the Semis, Internet sectors, Healthcare and now the precious metals, specifically gold.

In last weeks column we said "This week watch for a pullback in your favorite builders stocks and for all you gold bugs out there keep an eye on gold stocks as we see some very positive technical improvement in the underlying commodity."

Not to break our own arms patting ourselves on the back but we saw a tremendous move in Gold with the commodity breaking out of a four month consolidation to over $444 an ounce from $431 an ounce just over a week ago. This is a HUGE technical breakout for gold and matched with the recent break down in the US dollar it could portend a major move in gold prices.

As advertised last week, we saw sloppiness in the builder stocks. We'd look for an oversold rally in the builders this week and would use it as an opportunity to sell covered calls against any stocks in the group you might own.

The parties not over yet for the sector but we would certainly look to protect the massive profits that have been generated in this group so far. The sale of covered calls and the purchase of protective puts are a great way to protect your hard won gains.

More of the same this week, pick your spots, keep your stop losses tightly in place and wherever possible sell covered calls against your positions.

Why?

Because we are MASSIVELY over bought here with Bullish sentiment getting RIDICULOUSLY high and option premiums are skyrocketing. Two things to remember:

1. Markets can stay over bought for a VERY LONG time so it's imperative to stay long stocks here; the technical indicators still support higher prices.
2. 80% of all call options expire WORTHLESS. With odds like that on your side covered call writing is a no brainer.

Remember: Let the game come to you.