UBS Research has published their Chemicals Monthly report today. Download UBS Oct 3 Chemicals Monthly.

As you know, I have two chemical companies in the Cara 100: Dow Chemical and Lyondell.

---

Lyondell Chemical Co [GICS 15, Cara 100]
(LYO: Yahoo Finance file)
(LYO: StockChart chart)
(LYO: Investertech chart)
(LYO: ADVFN Financial Data)
(LYO: ADVFN Financial Data)

---

Dow Chemical Co [GICS 15, Cara 100]
(DOW: Yahoo Finance file)
(DOW: StockChart chart)
(DOW: Investertech chart)
(DOW: ADVFN Financial Data)
(DOW: ADVFN Financial Data)

---

3M Company (MMM) also was a Cara 100 company, but I removed it after CEO James McNerney departed for greener pastures at Boeing (BA). The new CEO has to prove himself before I would reconsider 3M for Cara 100 status, but you should know I still like that company.

As to Lyondell and Dow Chemical, here is a brief note taken from the current UBS report.

---

---

---

But the company and the stock are two different concepts. The stock is just a price. When the Monthly-Weekly and Daily Relative Strength Index (RSI 7 period) drops to 30 (or thereabouts depending on my assessment of the drivers), then I'm a buyer. When it rises to 70 (or thereabouts), I'm a seller.

Here are the Daily-Weekly-Monthly price charts for LYO (top) and DOW (bottom).

---

---

---

The key here is that I often write call options against the long positions in the first couple Bull cycles after the Daily appears to reach an extreme on the upside, and then I cover by buying back those short calls on any pullback. What I am doing is to gain a sense of the market for that stock. You have to be trading it before you really get a sense, and the covered call writes helps.

LYO was a BUY in March, and Dow in July. Subsequently, over the period of a couple months, the profits that were possible were very large by using this simple technique.

It's now a trading world. You simply cannot hope to Buy, Hold and Prosper, as they say, any longer. Well, you can, if your interest is fixed income and you hold the instrument to maturity, but that's a different situation altogether. I am talking about active portfolio management.

By looking at the charts for LYO and Dow, anybody can see that very high profits can be made trading very boring companies. Face it, Lyondell and Dow Chemical are not Google and Apple or Research In Motion. Lyondell and Dow are essentially boring to most traders, and they shouldn't be.

When you read the UBS Chemicals Monthly, you get a sense of the impact of strength and weakness of the economy and oil prices on the operations of these companies. After months of taking in the big picture, things like railcar shipments and the like, you get a clue to what is truly happening in the U.S. economy, and you see how different it is from what you hear in a politician's national/international "news" conference.

This month, UBS is opining that acquisition deals are essentially the only reason traders ought to have an interest in the chemicals group. That's a good observation, but there are deals and then there are deals. Most of the ones listed in this report may have interest to the world of chemicals analysts, and of course management and employees of the affected companies, but to you and me, it's just more boring stuff.

But a deal does focus the typical money manager on a company and quite often that extra hour looking at a company will result in the purchase of some stock. Money managers typically have a net cash inflow that has to be invested somewhere, and there is nothing more than a "deal" to provide the rationale.

To you and me, a deal probably doesn't factor into our decision because the accretive/dilutive result will take a couple years to work out, and guessing today at that result is not usually worthy of our time. Our time needs to be focused on the quarterly reporting of operating margins, ROA, ROE, growth in revenues, earnings, and dividends, changes in management, forward guidance of management, and so forth.

All of that serves to complete the picture of whether you or me will want to keep the company in our personal watch list. That list " the Cara Global Best 100 Companies in my case " is going to change by only about (say) ten pct each year. You need to focus on the companies you are going to invest your available time, and I say these should be the best quality companies (remember quality is partly a qualitative decision " beauty in the eyes of the beholder).

You follow these companies closely so that when the time comes (ie, share price analysis and assessment), you are ready to make competent buy/sell decisions.

I think you get a sense that I believe portfolio management is an activity that needs to be under your control. It's your capital, your resources, your future, at stake. If those resources include plentiful time and focus, then you should be making the trading decisions yourself.

But, most people frankly don't have the necessary time or focus, so they need to rely on professional advice. By studying and applying the methodology I lay out in this blog, however, you become better equipped to do that, and trust me, whether your account is $25,000 or $25 million, every professional advisor wants to be able to communicate with a client who has a grasp of the principles I write about every day.

If my advisor is listening (lol), I'm saying that Chemicals have finished their run up, and now I'd like to be on the sidelines. The advisor might take a different stance on the issue, and I'd be prepared to listen to that.