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Market Improved. Maybe Not Healthy Yet, But "Fever" Is Dropping

Jul. 01, 2012 3:08 AM ET
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Last week finished with a strong uptrend thanks to European news. Before Friday it was a choppy market with days up and down and volatility rising on some names.

I am not sure that the downtrend is over, but market is improving. There's a sort of weakness because negative news still make damages, but market is improving because is always able to recover.

S&P500

As market is probably going to consolidate, a good strategy could be put selling now that offer a buffer if market will show a moderate downsize from last Friday value in the short term. Many names has bug gap open since Friday.

Some name where I am planning selling put are XRT (SPDR Retail), USO (Oil Etf), SPY (S&P500 etf). Under radar are also XLE (SPDR Energy Selector) and XLF (SPDR Financial)

I am also monitoring the gold mining stocks (GDX) and silver/gold etfs, respectively GLD and SLV. But this commodities maybe didn't bottom yet and I want to wait more. Also because I have already a put sold on SLV that expire on July and that I'll be force to rolled out probably.

On currencies I am monitoring FXE, the currency shares euro trust.

Finally, I am still long Discovery Financ. Services (DFS). This stock has a very strong relative strength compared to S&P, but need index moving up to rise significantly toward my 38 target. Last Friday I transformed the long call position in a bull call spread because my option expiring in October is starting to lose time value quickly in coming weeks. Therefore I preferred to act conservatively, reducing the net exposure because i think market will be choppy for 1-2 weeks yet.

Discovery Financial Services.

Disclosure: I am long DFS.

Additional disclosure: I sold put on SLV expiring July. I could initiate long position or selling put on some of stocks mentioned over the next 72 hours

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