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[Vinnystocktips]

Yesterday I wrote about how our rally just did not feel right. The DOW close up over 120 points when everything that came out in the numbers appeared negative. Case-Shiller housing index, consumer confidence, and Chicago PMI all produced dreary numbers. Oil and gasoline prices remained high putting downward pressure on the consumer. But somehow the market still ended up strong on the Greece debt issues being delayed. Because of this I wrote about how I thought this was a head fake by the market. Something just did not feel right and I loaded up on July call options on the VIX since they became cheaper on the up day. I suspected I would see a decent return on those at some point between now and July, I have been talking about how I felt a pullback was coming for a few weeks. I just did not think we would see such a big drop the very next day.

The VIX shot up over 18% today alone as the major averages all dropped more than 2.25 percent. I always talk about using VIX call options as a hedge against a declining market and this was the perfect example of why. That 18% more than made up for my long positions that lost value today. At the same time I maintained my short positions in VPHM and OPEN. OPEN declined another 5 points today which now has dropped 30 points from its highs when I first talked about it being grossly overvalued. I added on the fact that I felt the market was due for a correction and it set up for the perfect short. We are seeing that now come to fruition. I said in my original article about OpenTable Loosing Its Legs that I set my exit point in the 70's. We are not far from there now.

Now let's talk about the next few weeks. I still see a bumpy road ahead with 400 more points of downside until I will even start thinking about covering my short positions or using my cash I raised a couple weeks ago. That would be the beginning of the 7-10% range of the pullback I was calling for. Only time will tell how correct my analysis was then. Markets always look bloody when they are pulling back, but I still think the underlining fundamentals are strong, but we just could not go up in a straight line for as long as we did without a breather. I am still a believer that we will end the year close to if not higher than that 13,000 level in the DJIA that we kept bouncing up against and could not break through. This pullback will let us break through it eventually.

When the time comes, some of the stocks and sectors I have written about recently are still going to be where I put my money. In particular, something that I have not done for a long time; invest in financials, will happen. I think money will finally rotate into that sector for the second half of the year. Goldman Sachs, Bank of America and HSBC will be my picks in that sector when the time is right.

Until then, stay cautious and happy trading!

http://www.vinnystocktips.com/?p=115

Cheers,

Vinny