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Old 07-11-2011, 09:17 PM   Nav to Top  #1
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Money VIX Investors Finally get Scared by Italy Debt

Last Thursday night before the jobs report, I wrote about how I hate sounding like a "Negative Nancy" but I warned to stay cautious in the market because I felt the run up was a short covering rally. I recommended to stay defensive and buy the VIX calls for protection and start to look at short candidates. Over the weekend, I wrote about how there were still a bunch of negatives out there looming including debt questions to be answered in Greece, Spain, Portugal, and Italy. I said if the jobs report on Friday was good, I was selling into strength, and if it was bad (which I thought it would be) the market would get scared very easily again and start to fall. Unfortunately, I was spot on with my market direction calls and the market was just a sea of red today. However, if you listened to my recommendation and bought the VIX calls prior to the weekend you got a great move of over 15% and at its highs it was at 20%. I did take 25% off the table today because of the huge move on my calls, even though I still think we will have further to fall and the VIX will be over 20 by end of week. Never hurt to take some profits when you have them. Altria which is my biggest defensive holding was actually up 4 pennies today. I will take it!

Alcoa reported after the bell today, and it did not have impressive numbers by any means. It missed by a penny on earnings and slightly sold off after hours. Their conference call said what we already knew, emerging markets are doing well, Europe isn't, and the airline and auto industry is pretty healthy overall due to emerging markets. Unfortunately, because of the market sentiment, I think their average earnings are going to be viewed negatively especially after the run up we just had. Later in the week we will get some other earnings that should be much more reflective of the overall market such as JP Morgan and Citigroup in the financials and Google in technology.

Not that I am a technician by any means, but the market seems to have bounced off of the 1315-1316 range in the S&P and I think we will retest that number within the next two weeks, hopefully it holds again, but if we get more bad news out of Europe we will break through it to the downside because financials will get crushed because of the so called "domino effect" that no one really knows how bad it could be.

Stay cautious and remember defense is not a bad word on Wall Street!


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