Trading Around The State of the Union: Don't Buy the Morning After

Among the topics of discussion for tonight’s State of the Union speech, the New York Times is reporting that once again President Bush is likely to call for mandates increasing the use of ethanol in the US. Most investors will recall how these stocks performed last year around the time of the State of the Union speech.

In the chart below, we created an index which tracks the performance of ethanol related stocks. Last year, the stocks actually had a stronger rally in the days leading up to the speech than they did in the days immediately after. Given that the ethanol story is more widely known today, this year we would expect these stocks to have a more muted reaction to any initiatives proposed.

One piece of advice to take from the trading in the ethanol stocks last year is that if the President proposes something tonight that is likely to benefit any particular sector, it is probably best to wait a few days for the initial euphoria to wear off than it is to rush in and buy tomorrow morning.

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